GIFT  OF 


GIFT 
FFH  25  1913 


CONSTRUCTION 


CONSTITUTIONALITY 


LONG  AND  SHORT  HAUL  CLAUSE 


INTERSTATE  COMMERCE  ACT  AS  AMENDED 
JUNE  18,  1910 


n 


J 


A.  PAPER   Br 

AI.FRED    P.    THOM 

Gbitbhai.  CoiTirsBt  at  Washington-  of  Southkrn 

RAII.WAX    OOMPANT 


0\O 


Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

Microsoft  Corporation 


http://www.archive.oVg/details/constructionconsOOthomrich 


CONSTRUCTION 


CONSTITUTIONALITY 


LONG  AND  SHORT  HAUL  CLAUSE 


INTERSTATE  COMMERCE  ACT  AS  AMENDED 


JUNE  18,  1910 


A   PAPER    BF 


AI.FREI3    P.    THOM 

GsirBKAX.    COTTSrSErr   ax    WASHIN-OTOIT  of    SOXTTHSRir 
RAIIiVTAY    Compawx 


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IS  SECTION  4  OF  THE  ACT  TO  REGULATE 
COMMERCE,  AS  AMENDED  JUNE  18,  1910, 
CONSTITUTIONAL  IN  SO  FAR  AS  IT  UNDER- 
TAKES TO  PROHIBIT  A  SMALLER  CHARGE 
FOR  THE  TRANSPORTATION  OF  PASSEN- 
GERS, OR  OF  LIKE  KIND  OF  PROPERTY,  FOR 
A  LONGER  THAN  FOR  A  SHORTER  DISTANCE 
OVER  THE  SAME  LINE  OR  ROUTE  IN  THE 
SAME  DIRECTION  UNDER  THE  CONDITIONS 
AND  WITH  THE  QUALIFICATIONS  STATED  IN 
THE  ACT? 

In  order  to  determine  this  question  it  is  necessary 
to  arrive  at  the  proper  interpretation  of  the  section  as 
it  now  stands. 

So  far  as  pertinent  to  the  inquiry,  the  language  of 
the  statute  is  as  follows : 

**That  it  shall  be  unlawful  for  any  common 
carrier  subject  to  the  provisions  of  this  Act  to 
charge  or  receive  any  greater  compensation  in 
the  aggregate  for  the  transportation  of  passen- 
gers, or  of  like  kind  of  property,  for  a  shorter 
than  for  a  longer  distance  over  the  same  line  or 
route  in  the  same  direction,  the  shorter  being  in- 
cluded within  the  longer  distance.  *  *  *  Pro- 
vided, however,  that  upon  application  to  the 
Interstate  Commerce  Commission  such  common 
carrier  may  in  special  cases,  after  investigation, 

(3) 


257194 


be  authorized  by  the  Commission  to  charge  less 
for  longer  than  for  shorter  distances  for  the 
transportation  of  passengers  or  property,  and 
the  Conmiission  may  from  time  to  time  pre- 
scribe the  extent  to  which  such  designated  com- 
mon carrier  may  be  relieved  from  the  operation 
of  this  section." 

The  proviso  to  the  above  section  is  practically  the 
same  as  the  proviso  contained  in  section  4  of  the  Act  to 
Eegulate  Commerce  before  it  was  amended  on  June  18, 
1910. 

The  first  part  of  the  section  was,  however,  before 
the  amendment  of  June  18,  1910,  as  follows: 

**That  it  shall  be  unlawful  for  any  common 
carrier  subject  to  the  provisions  of  this  act  to 
charge  or  receive  any  greater  compensation  in 
the  aggregate  for  the  transportation  of  passen- 
gers, or  of  like  kind  of  property,  under  substan- 
tially similar  circumstances  and  conditions,  for 
a  shorter  than  for  a  longer  distance  over  the 
same  line  in  the  same  direction,  the  shorter 
being  included  within  the  longer  distance/' 

It  will,  therefore,  be  seen  that,  considered  from  the 
standpoint  of  the  question  now  under  discussion,  the 
important  amendment  introduced  by  the  act  of  June 
18,  1910,  was  to  omit  from  the  section,  as  it  previously 
was,  the  words  ^^  under  substantially  similar  circum- 
stances and  conditions.'' 

The  question  for  determination,  therefore,  is,  what 


is  the  effect  of  the  omission  of  these  words  upon  the 
interpretation  of  the  statute? 

In  order  to  ascertain  this,  it  would  be  well  to  revert 
to  the  established  interpretation  of  this  section  of  the 
act  as  it  stood  before  the  amendment  in  question. 

In  respect  to  this  it  is  to  be  noted  that  at  no  time  has 
it  been  the  intention  of  Congress  to  make  an  inflexible 
rule  that  there  should  be  no  smaller  charge  for  a  longer 
distance  in  cases  covered  by  the  statute. 

When  the  Act  to  Regulate  Commerce,  finally  adopted 
in  1887,  was  before  Congress  for  consideration,  the 
House,  under  the  leadership  of  Mr.  Eeagan,  of  Texas, 
adopted  an  inflexible  rule  on  this  subject  forbidding 
absolutely  the  greater  charge  for  the  shorter  haul, 
while  the  Senate  adopted  the  view  that  the  rule  should 
be  subject  to  exceptions  when  the  circumstances  and 
conditions  required  it.  These  divergent  views  between 
the  House  and  Senate  were  sent  to  a  conference 
committee,  and  as  a  result  of  such  conference  the  sec- 
tion, as  it  stood  prior  to  the  amendment  of  June  18, 
1910,  was  adopted  by  both  houses  of  Congress  and 
became  the  law — the  law  thus  providing  that  the  rule 
should  not  be  inflexible,  but  should  be  subject  to  the 
exceptions  required  by  any  substantial  dissimilarity 
of  circumstances  and  conditions. 

Again,  when  the  amendment  to  the  4th  section  was 
under  consideration  by  Congress  in  1910,  Mr.  Hardy, 
of  Texas,  proposed  an  amendment,  the  effect  of  which 
was  to  strike  out  all  provisos  and  make  an  inflexible 


rule  forbidding  absolutely  the  greater  charge  for  the 
shorter  haul.  His  views  on  this  subject  were  thus 
expressed  by  him  on  page  5917  of  the  Congressional 
Eecord : 

**Now,  Mr.  Chairman,  to  state  briefly  the  pur- 
poses of  the  amendment  offered  by  me,  it  means 
simply  to  leave  the  unconditional  proviso  that 
no  road  should  ever  be  allowed  to  charge  more 
for  the  short  haul  than  the  long  haul  covering 
the  same  space  or  portion  of  the  railway. ' ' 

It  thus  appears  that,  on  both  occasions  when  this 
section  was  under  consideration  by  Congress,  the  prop- 
osition was  presented,  debated,  and  rejected  that  there 
should  be  a  hard  and  fast  rule  on  this  subject.  In  view 
of  this  and  of  the  debates  in  Congress  on  the  subject, 
we  think  it  may  be  fairly  stated  that  the  exception  was 
considered  by  Congress  as  necessary  to  meet  a  sub- 
stantial condition,  and  that  without  it  the  rule  would 
never  have  been  enacted. 

As  soon  as  the  act  of  1887  was  passed,  important 
questions  arose  as  to  its  interpretation.  In  re- 
spect to  these  questions,  elaborate  hearings  were  had 
and  most  mature  consideration  given  by  the  Interstate 
Commerce  Commission.  Two  views  of  the  meaning 
of  the  act  were  presented,  one  view  being  that  no  ex- 
ception from  the  general  rule  was  lawful  unless  made 
with  the  previous  sanction  of  the  Commission,  and  the 
other  that  no  order  of  relief  from  the  Commission 
was  required  when  the  circumstances  and  conditions 


were  substantially  dissimilar ;  since  the  carrier,  in  act- 
ing in  accordance  with  them,  would  commit  no  breach 
of  the  law,  although  it  would  be  responsible  in  case  it 
should  afterwards  be  found  that  the  circumstances  and 
conditions  were  misconceived  or  misjudged. 

On  this  question  the  Commission,  as  then  consti- 
tuted, was  unanimous,  and  Judge  Cooley,  delivering 
its  opinion,  held: 

**We  have  listened,  with  an  earnest  desire  to 
reach  a  just  conclusion,  to  all  the  arguments 
presented  on  the  construction  of  the  statute,  by 
those  appearing  either  to  advocate  or  to  oppose 
the  applications,  and  after  mature  consideration 
we  are  satisfied  that  the  statute  does  not  require 
that  the  Commission  shall  prescribe  in  every 
instance  the  exceptional  ca^e  and  grant  its  order 
for  relief  before  the  carrier  is  at  liberty  in  its 
tariffs  to  depart  from  the  general  rule.  The 
terms  of  the  statute  clearly  lead  to  the  opposite 
conclusion.    It  declares : 

'*  *It  shall  be  unlawful  for  any  common  car- 
rier subject  to  the  provisions  of  this  act  to 
charge  or  receive  any  greater  compensation  in 
the  aggregate  for  the  transportation  of  passen- 
gers or  of  the  like  kind  of  property  under  sub- 
stantially similar  circumstances  and  conditions 
for  a  shorter  than  for  a  longer  distance  over  the 
same  line  in  the  same  direction,  the  shorter 
being  included  in  the  longer  distance.' 

**Here  we  have  clearly  stated  what  is  unlaw- 
ful and  forbidden,  and  for  doing  the  unlawful 
and  forbidden  act  penalties  are  then  provided. 
But  that  which  the  act  does  not  declare  unlawful 


8 

must  remain  lawful  if  it  was  so  before,  and  that 
which  it  fails  to  forbid  the  carrier  is  left  at  lib- 
erty to  do  without  permission  from  any  one. 
The  charging  or  receiving  the  greater  compen- 
sation for  the  shorter  than  for  the  longer  haul 
is  seen  to  be  forbidden  only  when  both  are 
under  substantially  similar  circumstances  and 
conditions,  and,  therefore,  if  in  any  case  the 
carrier,  without  first  obtaining  an  order  of  re- 
lief, shall  depart  from  the  general  rule,  its  doing 
so  will  not  alone  convict  it  of  illegality,  since  if 
the  circumstances  and  conditions  of  the  two 
hauls  are  dissimilar  the  statute  is  not  violated/' 

This  view  was  sustained  by  the  Supreme  Court  of 
the  United  States  in 

Interstate  Commerce  Commission  vs.  Alabama 
Midland  Ey.,  168  U.  S.,  168. 

Under  the  law,  therefore,  as  it  was  prior  to  the 
amendment  of  1910,  the  carrier  possessed  the  right, 
without  any  previous  action  of  the  Commission,  to 
charge  less  for  a  longer  than  for  a  shorter  haul,  if  the 
circumstances  and  conditions  of  the  two  hauls  were 
substantially  dissimilar. 

The  result  of  this,  of  course,  was  that  the  4th  sec- 
tion, as  it  then  stood,  afforded  no  relief  for  those  who 
complained  of  the  smaller  charge  for  the  longer  dis- 
tance unless  the  complaining  party  should  file  a  peti- 
tion before  the  Interstate  Commerce  Commission,  and 
should  obtain  an  order  affirmatively  declaring  that  the 
circumstances  and  conditions  of  the  longer  haul  were 


not  substantially  dissimilar  from  those  of  the  shorter 
haul. 

When  Congress  came  to  the  consideration  of  amend- 
ments to  this  section,  in  1910,  it  had  become  convinced, 
justly  or  unjustly,  that  the  carrier,  availing  itself  of 
the  power  of  initiation  just  mentioned,  was  practically 
administering  all  prohibitions  as  to  the  smaller  charge 
for  the  longer  distance  out  of  the  law.  It  had  become 
convinced  that  this  was  a  great  evil,  and  listened  with 
approval  to  the  protest  that  was  made  against  this 
power  by  a  considerable  portion  of  the  public.  It  had 
come  to  believe  that  the  courts  had  given  such  a  con- 
struction to  the  section  as,  in  the  language  of  Mr. 
Mann,  ^^to  destroy  its  life.'' 

It  was  thought  that  the  general  rule  on  this  subject 
had  been  wiped  out  of  existence  by  the  initiative  of  the 
carriers. 

We  do  not  think,  however,  that  by  the  omission  of 
the  words  ^' under  similar  circumstances  and  condi- 
tions,'' it  was  the  intention  of  the  act  to  change  the 
principles  of  the  law  which  had  governed  the  making 
of  rates. 

The  Act  to  Eegulate  Commerce  still  provides  in  its 
first  section  that — 

"all  charges  made  for  any  service  rendered  or 
to  be  rendered  in  the  transportation  of  passen- 
gers or  property  shall  be  just  and  reasonable;" 

in  its  second  section  that 

''no  carrier  shall  collect  or  receive  from  any 
person  or  persons  a  greater  or  less  compensa- 


10 

tion  for  any  service  rendered,  or  to  be  rendered, 
in  the  transportation  of  passengers  or  property, 
than  it  collects  or  receives  from  any  other  per- 
son or  persons  for  doing  for  him  or  them  a  like 
and  contemporaneous  service  in  the  transporta- 
tion of  a  like  kind  of  traffic  under  similar  cir- 
cumstances and  conditions,^' 

and,  in  section  three,  that  it  shall  be  unlawful  for  any 
common  carrier,  subject  to  the  provisions  of  the  act, 

'*to  make  or  give  any  undue  or  unreasonable 
preference  or  advantage  to  any  particular  per- 
son, etc.,  or  locality,  or  any  particular  descrip- 
tion of  traffic  in  any  respect  whatever.'' 

These  provisions  of  the  Act  to  Eegulate  Commerce 
express  its  substantial  and  dominating  purposes  and 
are  to  be  read  into,  and  to  be  considered  a  qualifica- 
tion of,  every  other  provision  of  the  act.  This,  in  ef- 
fect, was  stated,  in  respect  to  the  requirement  of  the 
first  section,  by  Mr.  Mann  in  the  debate  in  the  House 
of  Representatives  on  this  subject. 

At  page  4796  of  the  Congressional  Record,  in  dis- 
cussing the  question  as  to  whether  the  discretion  cre- 
ated by  the  proviso  of  the  act  was  a  limited  or  un- 
limited discretion,  and,  therefore,  whether  or  not  it 
was  a  delegation  of  legislative  power,  he  says : 

'^Remember,  whatever  the  Commission  does 
in  respect  to  this  matter,  it  is  always  bound  by 
the  act  of  Congress  that  rates  shall  be  just  and 
reasonable  and  that  railroad   companies   shall 


11 

not  establish  unjust  and  unreasonable  rates ;  so 
that  practically  what  we  do  here  is  to  give  the 
Commission  power  to  say  what  in  a  particular 
case  shall  be  a  just  and  reasonable  rate,  al- 
though we  declare  as  a  general  proposition  that 
it  shall  be  unjust  and  unreasonable  to  charge  a 
higher  rate  for  a  short  haul  than  for  a  long 
haul/' 

He  further  stated,  when  this  bill  was  introduced  in 
the  House,  and  he  was  making  his  explanation  in  re- 
spect to  it,  that  there  were  serious  conditions  of  com- 
petition which  the  law  must  not  undertake  absolutely 
to  forbid. 

Thus,  on  page  4795  of  the  Congressional  Eecord,  he 
says: 

^^The  intention  of  the  act  (the  original  act) 
was  undoubtedly  to  provide  that  in  general,  as 
an  ordinary  proposition,  a  railroad  company 
could  not  charge  less  between  two  points  than  it 
charged  between  one  of  those  points  and  a  point 
midway,  or  part  way,  between  the  original  two 
points.  In  other  words,  they  should  not  be  al- 
lowed to  run  freight  from  point  A  through  point 
B  to  point  C,  and  charge  less  between  A  and  C 
than  they  charge  between  A  and  B.  And  yet 
water  competition  seems  to  prevent  a  hard  and 
fast  rule  on  that  subject,  because  railroads  are 
necessarily  in  competition  not  only  with  regular 
passenger  and  freight  steamers,  but  also  with 
tramp  ships  on  the  ocean  and  on  the  lakes  and 
rivers,  and  must  compete  with  these  vessels. 
And  it  may  often  happen  that  the  railroad  com- 
pany under  the  principles  which  underlie  the 


12 

making  of  freight  rates  cannot  afford  to  make 
its  rate  lower  than  it  does  between  points  A  and 
B,  and  yet  can  afford  to  make  some  profit  out 
of  carrying  freight  at  a  lower  rate  between 
points  A  and  C.  That  theory  controlled  Con- 
gress when  it  enacted  the  original  act,  and  I 
think  no  one  has  ever  contended  that  there  may 
not  be  cases  where,  under  proper  management 
of  railroads,  a  less  charge  may  be  made  for  a 
long  haul  than  for  a  short  haul.'' 

Again : 

^^The  Commission  may  say  what  is  a  reason- 
able rate  to  different  points ;  but  if,  in  order  to 
get  some  of  the  business  which  otherwise  would 
all  go  by  water,  the  railroad  company  wants  to 
carry  freight  at  less  than  is  a  reasonable  rate 
on  all  its  business,  nobody  would  wish  to  pre- 
vent it  doing  that,  because  to  that  extent  you 
could  lower  the  rates.'' 

And  again,  on  page  4797,  in  answer  to  the  question: 

^  ^  Is  it  practicable  to  legislate  so  as  to  deprive 
New  York  and  San  Francisco  of  the  benefit  of 
the  ocean,  that  no  injustice  may  be  done  to  the 
towns  inland?" 

Mr.  Mann  said: 

**I  think  not.  I  think  that  San  Francisco  and 
New  York  and  other  ports  on  the  ocean  have  a 
natural  advantage  which  cannot,  and  ought  not 
if  it  could,  be  taken  away  from  them.  In  other 
words,  when  you  come  to  the  question  of  fixing 
freight  rates,  please  remember  these  proposi- 
tions: A  railroad  company  must  pay  its  oper- 


13 

ating  expenses.  It  must  pay  the  cost  of  main- 
tenance. It  must  pay  the  cost  of  its  general 
offices.  It  must  pay  the  interest  on  its  bonds. 
It  must  pay,  if  it  is  successful,  dividends  on  its 
stock.  It  must  carry  some  freight  at  profit 
enough  to  make  dividends  on  the  stock. 

^^It  may  carry  some  freight  which  will  help 
it  to  pay  interest  on  its  bonds,  and  it  may  be  met 
by  a  situation  where  it  can  carry  a  large  amount 
of  freight  at  rates  which  will  more  than  pay 
the  operating  expenses  or  a  proportionate  share 
of  the  operating  expenses,  which  will  more  than 
pay  its  proportionate  share  of  the  cost  of  main- 
tenance, which  will  more  than  pay  its  share  of 
the  cost  of  the  general  offices,  which  will  con- 
tribute something  to  the  interest  on  the  bonds, 
but  which  will  not  contribute  anything  towards 
dividends  on  the  stock  or  which  will  not  even 
contribute  enough  towards  the  interest  on  the 
bonds  to  pay  more  than  1  or  2  per  cent,  whereas 
the  rate  would  be  4  or  5  per  cent.    Now,  with 
that  large  amount  of  freight  which  it  may  get 
if  it  competes  successfully  with  other  methods 
of  transportation,  it  is  the  duty  of  the  railroad 
company  to  secure  that  freight  at  lower  terms 
than  are  practicable  to  pay  interest  and  divi- 
dends if  it  carried  all  freight  on  the  same  basis, 
and  that  will  be  true  forever  in  railroads  in  com- 
petition between  New  York  and  San  Francisco, 
competing  with  ocean  methods  of  transporta- 
tion, and  ought  to  be  so.     It  is  true  through 
many  parts  of  the  United  States,  and  ought  to 
be  so,  because  in  the  end  it  tends  to  reduce  the 
rates  on  freight  throughout  the  country. 


14 

*'0f  course,  under  existing  law,  as  construed 
by  the  courts,  the  long  and  short-haul  clause 
amounts  to  nothing.  Under  the  proposition 
which  we  have  presented,  if  enacted  into  law, 
there  must  be  application  made  in  special  cases 
to  the  Commission  which  grants  authority  to 
charge  a  less  amount  for  the  longer  distance 
than  for  the  shorter  distance,  and  we  think  the 
power  can  safely  be  lodged  in  the  hands  of  the 
Commission.  It  is  perfectly  patent  it  must  be 
lodged  somewhere.  We  will  never  reach  a  basis 
in  this  country,  and  ought  not,  with  our  im- 
mense railroad  mileage  and  with  our  great 
water  carriage,  with  our  long  lines  of  road, 
where  we  charge  railroad  rates  on  the  mileage 
basis  or  where  we  put  all  classes  upon  the  same 
basis.'' 


It  will  thus  be  seen  that  there  are  conditions  of 
competition  well  recognized  by  the  promoters  of  this 
legislation  as  conditions  which  the  law  must  not  under- 
take absolutely  to  ignore  or  forbid.  Most  of  these 
illustrations,  as  given  on  the  floor  of  the  House,  were 
of  water  competition,  but  they  were  not  confined  to 
water  competition.  One  of  the  notable  cases,  having 
no  reference  to  water  competition,  is  that  of  the  com- 
petition of  commodities  between  the  citrus  fruits  of 
California  and  the  citrus  fruits  of  Florida  in  the  com- 
peting markets  of  the  country,  and  throughout  the  de- 
bate it  was  recognized  that  the  economic  rule  which 
justifies  the  smaller  charge  for  the  longer  haul  was 
not  at  stake,  but  that  the  administration  of  the  law 


15 

which,  in  the  judgment  of  Congress,  was  faulty,  was  at 
stake  and  must  be  corrected. 

If,  therefore,  as  stated  by  Mr.  Mann  on  the  floor 
of  the  House,  and  as  seems  to  be  certainly  true,  the 
provision  of  the  first  section  of  the  act,  requiring  all 
charges  made  for  any  service  rendered  in  the  trans- 
portation of  passengers  and  property  to  be  just  and 
reasonable,  must  be  taken  as  a  qualification  of  section 
4,  and  must,  therefore,  qualify  the  power  of  the  In- 
terstate Commerce  Commission  under  the  proviso  to 
permit  or  forbid  a  smaller  charge  for  the  longer 
distance,  then  it  will  be  necessary  for  the  Com- 
mission, in  passing  on  applications  for  this  re- 
lief, to  determine  whether,  under  the  circum- 
stances and  conditions  of  the  longer  and  of 
the  shorter  haul,  the  charging  of  a  smaller  rate 
for  the  longer  distance  is  just  and  reasonable.  In 
other  words,  in  passing  on  such  applications,  it  will 
be  necessary  for  the  Commission  to  determine  whether 
the  traffic  moves  to  the  longer  distance  and  to  the 
shorter  distance,  ^^  under  substantially  similar  circum- 
stances and  conditions.*' 

Under  the  law  as  it  was  before  the  amendment,  the 
carrier  was  entitled  to  the  initiative  in  determining 
this  question,  but  its  determination  might  upon  appli- 
cation to  the  Commission  be  overruled.  Under  the 
law  as  changed,  the  carrier  cannot  take  the  initiative 
in  respect  to  it,  but  the  question  must  in  the  first  in- 
stance be  determined  by  the  Commission.    The  ques- 


16 

tion,  however,  to  be  determined  in  both  cases  is  the 
same;  only  the  method  of  determination  is  altered  by 
the  amendment. 

This  is  in  line  with  the  policy  of  Congress  in  respect 
to  another  important  matter  embraced  in  the  same 
amendatory  act  of  June  18,  1910.  Prior  to  that  act,^ 
the  carriers  could,  in  all  instances,  increase  their  rates 
without  the  previous  consent  of  the  Commission.  The 
initiative  as  to  increases  of  rates  was,  prior  to  the 
amendment,  completely  in  the  carrier.  By  the  amend- 
ment, the  Commission  was  given  the  discretionary 
power  to  deprive  the  carrier  of  its  rights  to  initially 
increase  rates  and  was  authorized  to  inaugurate  an 
investigation,  either  upon  complaint  or  upon  its  own 
motion,  for  the  purpose  of  determining  upon  the  pro- 
priety of  proposed  increases.  The  only  difference  be- 
tween this  last-mentioned  case  and  the  case  of  the 
long  and  short-haul  clause,  is  that  the  carrier  is  de- 
prived in  a  qualified  way  of  its  power  of  initiation  in 
respect  to  increase  of  rates,  while  it  is  deprived  abso- 
lutely of  its  power  of  initiation  in  respect  to  the  long 
and  short-haul  charge;  and  the  Commission  is  clothed 
with  a  discretionary  power  to  assume  the  initiative  in 
respect  to  an  increase  of  rates,  while  it  is  made  its 
absolute  duty,  on  the  application  of  the  carrier,  to  as- 
sume the  initiative  in  relation  to  the  long  and  short- 
haul  charge. 

In  this  view  of  the  amendment,  the  statute  would 
confer  upon  the  Commission  a  power,  in  respect  to 


17 

fixing  rates  for  the  longer  haul,  measured  by  the  rule 
that  the  rates  so  fixed  shall  be  just  and  reasonable 
under  the  circumstances  and  conditions  of  the  longer 
haul  as  compared  with  the  circumstances  and  con- 
ditions of  the  shorter  haul,  and  not  an  unqualified,  un- 
controlled, and  unmeasured  discretion. 

It  is  believed  that  this  is  the  proper  construction  of 
the  act.  As  thus  construed,  it  is  believed  to  be  con- 
stitutional, notwithstanding  the  fact  that  it  deprives  the 
carrier  of  the  initiative  as  to  these  rates.  If  the  Com- 
mission should  decide  arbitrarily  against  the  applica- 
tion of  the  carrier  for  relief,  in  a  case  where  there 
existed,  as  a  fact,  such  substantial  dissimilarity  of 
circumstances  and  conditions  as  to  make  the  smaller 
charge  for  the  longer  haul  just  and  reasonable,  or  if 
the  Commission  should  determine  that  question  er- 
roneously, it  is  believed  that  the  carrier  would  have 
relief  in  the  courts  to  the  same  extent  that  it  would 
have  if  there  was,  in  a  proper  case,  an  arbitrary  or 
erroneous  determination  by  the  Commission  against 
the  right  of  the  carrier  to  increase  its  rates. 

In  stating  the  proposition  that,  as  thus  construed, 
the  fourth  section  is  constitutional,  we  have  not  over- 
looked the  contention,  very  intelligently  made,  that 
the  requirement  of  the  act  that  all  rates  shall  be  just 
and  reasonable,  is  not  a  sufficient  primary  standard 
to  prevent  the  power  conferred  upon  the  Commission 
in  this  regard  from  being  a  delegation  of  legislative 
authority,  and  the  further  contention  that,  irrespective 
2— E 


18 

of  the  sufficiency  of  the  primary  standard,  the  power 
involves  the  delegation  of  legislative  power  because 
the  Commission's  authority  cannot  be  exercised  ex- 
cept upon  application  of  the  carrier. 

In  respect  to  the  contention  that  the  primary  stand- 
ard prescribed  by  the  act  is  not  sufficiently  definite,  it 
would  seem  only  necessary  to  refer  to  the  following 
cases : 

Field  vs.  Clark,  143  U.  S.,  649 ; 
Buttfield  vs.  Stranahan,  192  U.  S.,  470; 
Union  Bridge  Co.  vs.  United  States,  204  U.  S., 

364; 
United  States  vs.  Heinszen,  206  U.  S.,  370; 
St.  Louis  &  Iron  Mountain  Ry.  Co.  vs.  Taylor, 

210U.  S.,  281; 
Monongahela  Bridge  Co.  vs.  United  States,  216 
U.  S.,  177. 

In  these  cases  enough  is  stated,  in:  respect  to  the 
primary  standard,  to  show  conclusively,  in  my  judg- 
ment, that  the  Supreme  Court  will  hold  that  a  require- 
ment that  a  rate  to  be  authorized  by  the  Commission 
shall  be  just  and  reasonable,  is  a  sufficient  primary 
standard  and  that  an  exercise  of  power  by  the  Com- 
mission, under  such  authority,  will  not  amount  to  the 
exercise  of  legislative  power. 

In  respect  to  the  contention  that,  irrespective  of  the 
sufficiency  of  the  primary  standard,  the  power  of  the 
Commission  cannot  be  exercised  except  upon  the  ini- 


19 

tiative'  of  the  carrier  in  making  the  application,  it  is 
not  believed  that  in  the  present  trend  of  popular  and 
judicial  thought  a  proposition  of  this  kind,  no  matter 
how  technically  meritorious,  will  be  approved  by  the 
Supreme  Court.  In  fact,  if  the  primary  standard  of 
determination  by  the  Commission  is  sufficient,  that 
would  seem  to  end  the  question  of  whether  or  not  the 
delegation  of  power  is  legislative;  for,  if  the  delega- 
tion of  power  in  itself  is  not  the  delegation  of  a 
legislative  power,  it  could  hardly  be  made  so  by  the 
method  of  its  exercise.  It  would  seem  more  pertinent 
to  inquire,  in  this  connection,  whether  the  operation 
of  the  law  would  be  equal  and  uniform,  but,  as  above 
stated,  it  is  not  believed  that  any  constitutional  objec- 
tion would,  under  current  conditions,  be  upheld.  The 
same  relief  and  the  same  equality  of  protection  under 
the  law  would  be  open  to  all  alike. 

That  the  foregoing  interpretation  of  this  amend- 
ment is  proper,  is  strengthened  by  the  consideration 
that  any  other  construction  would  render  the  act  un- 
constitutional. 

As  said  by  Mr.  Justice  White,  in  delivering  the  opin- 
ion of  the  court  in  United  States  vs.  Delaware  "&  Hud- 
son Company,  213  U.  S.,  366,  407-8 : 

^*It  is  elementary  when  the  constitutionality 
of  a  statute  is  assailed,  if  the  statute  be  reason- 
ably susceptible  of  two  interpretations,  by  one 
of  which  it  would  be  unconstitutional  and  by 
the  other  valid,  it  is  our  plain  duty  to  adopt 
that  construction  which  will  save  the   statute 


20 

from  constitutional  infirmity.  Knights  Tem- 
plars Indemnity  Co.  vs,  Jarman,  187  U.  S.,  197, 
205.  And  unless  this  rule  be  considered  as 
meaning  that  our  duty  is  to  first  decide  that  a 
statute  is  unconstitutional  and  then  proceed  to 
hold  that  such  ruling  was  unnecessary  because 
the  statute  is  susceptible  of  a  meaning,  which 
causes  it  not  to  be  repugnant  to  the  Constitu- 
tion, the  rule  plainly  must  mean  that  where  a 
statute  is  susceptible  of  two  constructions,  by 
one  of  which  grave  and  doubtful  constitutional 
questions  arise  and  by  the  other  of  which  such 
questions  are  avoided,  our  duty  is  to  adopt  the 
latter,  Harriman  vs.  Interstate  Com.  Com., 
211  U.  S.,  407.'^ 

Before  proceeding,  to  discuss  the  question  whether, 
assuming  that  the  above  construction  is  unsound,  the 
clause  is  valid,  it  may  be  well  to  state  certain  prin- 
ciples which  have  been  established  by  the  courts  as  to 
what  are  circumstances  and  conditions  which  make  a 
lower  charge  for  the  longer  distance  just  and  reason- 
able. 

From  a  reference  to  the  adjudicated  cases  it  will  be 
seen  that  all  the  substantial  facts  surrounding  a  serv- 
ice must  be  considered  in  determining  whether  a  charge 
for  it  is  just  and  reasonable.  In  the  cases  thus  far 
presented,  the  question  of  whether  or  not  a  lower 
charge  for  a  longer  than  for  a  shorter  distance  is  just 
and  reasonable,  has  always  arisen  under  a  statute 
which  in  terms  permitted  a  lower  charge  for  the  longer 
than  for  the  shorter  distance  if  the  circumstances  and 
conditions  of  the  service  were  substantially  dissimilar ; 


21 

but  it  is  held,  as  in  Louisville  &  Nashville  Railroad 
Company  vs.  Behlmer,  175  U.  S.,  674,  that  the  deter- 
mination of  the  question  whether  in  any  ease  substan- 
tial dissimilarity  of  circumstances  and  conditions  ex- 
ists, must  be  made  subject  to  **the  absolute  command 
of  the  statute  that  all  rates  shall  be  just  and  reason- 
able.^' 

The  decisions,  therefore,  which  hold  that  all  the  ma- 
terial facts  surrounding  the  service,  including  the  ex- 
istence of  substantial  competition,  whether  from  water 
carriers  or  other  sources,  must  be  considered,  are,  in 
effect,  decisions  establishing  the  principle  that  a  rate 
made  lower  for  a  longer  than  for  a  shorter  haul  by 
substantial  competition,  is,  to  the  extent  that  it  is  in- 
fluenced by  such  competition,  just  and  reasonable. 

Cincinnati,  New  Orleans  &  Texas  Pacific  Ry.  vs. 
Interstate  Commerce  Conunission,  162  U.  S., 
184; 
Texas  &  Pacific  Ry.  vs.  Interstate  Commerce 

Commission,  162  U.  S.,  197 ; 
Interstate  Commerce  Commission  vs,  Alabama 

Midland  Ry.,  168  U.  S.,  144; 
Louisville  &  Nashville  R.  R.  vs.  Behlmer,  175 

U.  S.,  648; 
East  Tennessee,  Virginia  &  Georgia  Ry.  vs,  In^ 
terstate  Commerce  Commission,  181  U.  S.,  1; 
Interstate  Commerce  Commission  vs.  Louisville 

&  Nashville  R.  R.,  190  U.  S.,  273; 
Interstate  Commerce  Commission  vs.  Chicago 
Great  Western  Ry.,  209  U.  S.,  108. 


22 


IF  THE  FOREGOINa  INSTRUCTION  IS  NOT 
SOUND,  IS  THE  PROVISION  OF  THE  ACT  AS 
IT  NOW  STANDS  CONSTITUTIONAL? 

In  addition  to  the  interpretation  above  given  of  the 
amendment  of  June  18,  1910,  one  other  construction 
may  be  suggested.  This  construction  is  that  the  pro- 
viso by  which  authority  is  conferred  upon  the  Com- 
mission to  permit  the  making  of  a  smaller  charge  for 
a  longer  than  a  shorter  haul,  amounts  to  an  absolute 
discretion  in  the  Commission,  unlimited  by  any  rule 
laid  down  by  Congress,  and  subject  to  no  supervision. 
It  is  believed  that  any  such  construction  of  the  amend- 
ment would  make  it  unconstitutional.  It  would  be  either 
a  delegation  by  Congress  to  the  Commission  of  power 
to  make  rates  without  providing  any  rule  to  be  admin- 
istered by  it,  or  it  would  be  a  delegation  by  Congress 
to  the  Commission  of  authority,  in  its  unlimited,  un- 
qualified, and  unregulated  discretion,  to  suspend  a 
legislative  act  of  Congress.  To  do  one  or  the  other 
would  involve  the  exercise  of  a  legislative  power  by 
the  Commission. 

The  making  of  rates  is  essentially  a  legislative  act. 
Prentis  vs.  Atlantic  Coast  Line  R.  R.,  211  U.  S., 
226. 

The  suspension  of  a  law  of  Congress  at  the  absolute 
discretion  of  the  officer  entrusted  with  the  power,  and 


23 

not  made  to  depend  upon  the  finding  by  him  of  a  cer- 
tain fact,  is  also  the  exercise  of  a  legislative  power. 
Field  vs.  Clark,  143  U.  S.,  693. 

The  principle  which  forbids  the  delegation  by  Con- 
gress of  any  part  of  its  legislative  power  is  thus  an- 
nounced by  Mr.  Justice  Lamar: 

*  *  That  no  part  of  its  legislative  power  can  be 
delegated  by  Congress  to  any  other  department 
of  the  Government,  executive  or  judicial,  is  an 
axiom  in  constitutional  law,  and  is  universally 
recognized  as  a  principle  essential  to  the  integ- 
rity and  maintenance  of  the  system  of  govern- 
ment ordained  by  the  Constitution.'' 

The  same  principle  is,  in  the  case  of  Field  vs.  Clark, 
thus  announced  by  Mr.  Justice  Harlan,  who  delivered 
the  opinion  of  the  majority  of  the  court : 

**That  Congress  cannot  delegate  legislative 
power  to  the  President  is  a  principle  universally 
recognized  as  vital  to  the  integrity  and  mainte- 
nance of  the  system  of  government  ordained  by 
the  Constitution.'' 

Of  course,  the  same  principle  applies  to  any  other 
delegation  of  legislative  power. 

The  delegation  of  power  by  Congress  to  suspend 
one  of  its  acts  is,  when  justified  at  all,  universally  jus- 
tified on  the  ground  that  the  effect  of  the  act  is  to 
direct  the  exercise  of  the  power  of  suspension  upon  the 
ascertainment,  by  the  person  to  whom  the  power  is 
delegated,  of  the  existence  of  a  particular  fact  or  state 
of  conditions  or  circumstances.    Union  Bridge  Co.  vs. 


24 

U.  S.,  204  U.  S.,  382.  If,  therefore,  in  this  case.  Con- 
gress has  established  a  rule  that  the  rates  which  the 
Commission  may  authorize  shall  be  just  and  reason- 
able under  the  circumstances  of  the  carriage,  then  the 
delegation  of  power  to  the  Commission  to  first  ascer- 
tain that  fact  and  afterwards  to  authorize  a  rate  in 
accordance  with  it,  is,  as  heretofore  stated,  believed 
to  be  a  valid  delegation  of  power ;  but  if  the  limitation 
that  rates  shall  be  just  and  reasonable  under  the  cir- 
cumstances of  the  service  does  not  apply  to  this  sec- 
tion, and  if  Congress  has  thus  fixed  no  rule  for  the 
government  of  the  Commission  in  this  regard,  but 
simply  means  to  delegate  its 'legislative  discretion  to 
the  Commission  without  determining  the  standard  of 
its  exercise,  it  is  a  delegation  of  legislative  power  and 
is  unconstitutional. 

Moreover,  if  the  power  expressed  in  this  proviso  to 
section  4  is  purely  arbitrary  and  is  controlled  by  no 
regulation  or  restraint,  it  is  unconstitutional  for  that 
reason  alone.  The  very  idea  that  one  man  may  be 
compelled  to  hold  his  property,  or  any  material  right 
essential  to  its  enjoyment,  at  the  mere  will  or  caprice 
of  another,  is  intolerable  in  any  country  where  free- 
dom prevails,  and  is  contrary  to  the  Constitution. 

Yick  Wo  vs.  Hopkins,  118  U.  S.,  356; 

City  of  Baltimore  vs,  Kadecke,  49  Md.,  217 ; 

Ex  parte  Sing  Lee,  96  Cal.,  354; 

City  of  Sioux  Falls  vs.  Kirby,  6  S.  D.,  62; 

City  of  Eichmond  vs.  Dudley,  129  Ind.,  112; 

State  vs.  Mahner,  43  La.,  496. 


25 

This  last-stated  proposition  is,  however,  denied,  in 
respect  to  the  immediate  question  before  us,  by  the  Su- 
preme Court  of  the  United  States  in  Louisville  & 
Nashville  R.  R.  ^5.  Kentucky,  183  U.  S.,  503 ;  but,  for 
reasons  hereinafter  stated,  it  is  hoped  that  this  case 
will  not  be  adhered  to  by  the  Supreme  Court  when 
the  question  is  presented  for  further  consideration. 

In  the  event  that  the  delegation  of  power  contained 
in  the  proviso  to  the  4th  section  is  unconstitutional,  it 
becomes  proper  to  consider  whether  the  effect  of  that 
unconstitutionality  is  to  render  invalid  the  whole  of 
the  4th  section,  or  only  the  proviso,  leaving  an  in- 
flexible rule  forbidding  the  charging  of  a  smaller  rate 
for  the  longer  distance.  This  question  will  now  be  con- 
sidered. 


IS  THE  SECTION  SEPARABLE,  AND  WILL  THE 
PROVISO  ONLY  BE  DECLARED  INVALID? 

It  is  not  believed  that  the  court  would  hold  that  the 
proviso  of  the  section  is  separable  from  the  other  por- 
tion of  it.  As  has  been  hereinbefore  noted,  Congress, 
when  enacting  the  original  law  in  1887,  and  also  in 
adopting  the  amendment  in  1910,  was  confronted  with 
the  proposition  to  enact  an  absolute,  inflexible  rule  on 
the  subject.  On  both  occasions  it  refused,  and  delib- 
erately refused,  to  do  so.  It  can,  therefore,  in  the  light 
of  this  legislative  history,  hardly  be  claimed  that  Con- 
gress would  have  adopted  an  absolute  rule  without 


26 

condition,  and,  if  not,  the  two  parts  of  the  statute  can- 
not be  considered  separable. 

Moreover,  when  the  reasons  are  examined  which 
caused  Congress  to  decline  to  enact  an  absolute  and  in- 
flexible rule,  it  will  be  found  that  they  are  so  potential 
as  to  prevent  a  court  from  concluding  that  the  two  pro- 
visions of  the  statute  are  separable.  It  is  shown  in 
Judge  Cooley^s  opinion,  hereinbefore  referred  to,  that 
the  commerce  of  the  country  could  not  be  conducted 
under  an  inflexible  rule.  Thus  it  was  said  by  Judge 
Cooley : 

^^It  was  fairly  shown  before  us,  that  instances 
exist,  and  may  be  found,  along  the  route  of  pe- 
titioner's lines  in  the  States  of  Kentucky,  Ten- 
nessee, Georgia,  Alabama,  Mississippi,  and  Lou- 
isiana,  where   the   competition  of  water-ways 
forces  down  the  railroad  rates  below  what  it  is 
possible  to  make  them  at  noncompetitive  points 
and  still  maintain  the  roads  with  success  or 
ejSiciency.     The  reason  is  that  the  carriers  by 
water  can  perform  the  service  at  very  much  less 
cost  than  the  carriers  by  land.     The  general 
fact  is  that  railroad  rates  for  the  transportation 
of  property  ""must   approximate   closely   those 
which  are  made  between  the  same  points  by 
steamer,  and  the  steamer  rates  are  generally, 
if  not  invariably,  much  below  what  the  railroads 
can  afford  to  accept  upon  all  their  business.    In 
such  cases,  if  competition  is  maintained,  more 
must  be  charged  at  interior  points  than  can  be 
obtained  at  the  points  of  competition;  and  if 
the  competitive  rates  are  such  as  are  productive 
of  some  gain,  however  slight,  the  non-competi- 


27 

tive  points  are  likely  to  receive  indirect  advan- 
tage therefrom,  while  the  competitive  points 
have  the  larger  and  more  direct  benefit,  and  are 
afforded  a  choice  of  agencies  in  transportation 
whose  rivalry  may  fairly  be  expected  to  keep  the 
cost  down  to  a  minimum.  The  interior  points 
may  have  no  ground  for  complaint  in  such  a 
case,  provided  the  rates  they  are  charged  are 
in  themselves  just  and  reasonable,  even  though 
the  fact  be  that  in  some  cases  more  is  charged 
for  the  short  than  for  the  long  haul  over  the 
same  line  in  the  same  direction.  This  general 
fact  is  recognized  the  world  over;  and  of  Eng- 
lish railways  it  has  been  often  remarked  that 
some  of  them  would  be  deprived  of  much  of 
their  value  if  they  were  not  allowed  to  meet 
water  competition  by  such  concessions  at  the 
points  of  contact  as  the  competition  would 
compel. 


^*Low  rates  are  a  necessity  of  the  situation; 
and  if  railroads  compete  with  water  transporta- 
tion either  on  the  ocean  or  the  navigable  rivers, 
they  have  no  choice  but  to  accept  such  rates. 
To  compel  the  roads  to  observe  strictly  the  gen- 
eral rule  laid  down  by  the  fourth  section  would 
necessitate  their  abandonment  of  some  classes 
of  business  in  which  their  competition  with 
water  transportation  is  now  of  public  impor- 
tance. ' ' 

I  Annual  Eep.  I.  C.  C,  p.  75. 

,  This  same  view  was  extended  to  embrace  all  classes, 
whether  from  water  carriers  or  otherwise,  of  substan- 
tial  competition,   by  the   decisions   of   the   Supreme 


28 

Court  of  the  United  States  in  the  following  series  of 
cases : 

Cincinnati,  New  Orleans  &  Texas  Pacific  By.  vs. 

Interstate  Commerce  Commission,  162  U.  S., 

184; 
Texas  &  Pacific  By.  vs.  Interstate  Commerce 

Commission,  162  U.  S.,  197; 
Interstate  Commerce  Commission  vs.  Alabama 

Midland  B.  B.,  168  U.  S.,  144; 
Louisville  &  Nashville  B.  B.  vs,  Behlmer,  175 

U.  S.,  648; 
East  Tennessee,  Virginia  &  Georgia  B.  B.  vs. 

Interstate  Commerce  Commission,  181  U.  S., 

1; 

Interstate  Commerce  Commission  vsi  Louisville 
&  Nashville  B.  B.,  190  U.  S.,  273; 

Interstate  Commerce  Commission  vs,  Chicago 
Great  Western  By.,  209  U.  S.,  108. 

It  will  thus  be  seen  that  the  economic  law,  which  con- 
trols the  movement  of  trafl&c  under  the  dissimilar  cir- 
cumstances and  conditions  produced  by  controlling 
forces  in  respect  to  the  longer  as  compared  to  the 
shorter  haul,  is  so  well  recognized  and  is  so  potential 
that  it  is  not  believed  that  the  Supreme  Court  will 
hold  that  the  proviso  in  section  4  is  separable  from 
the  remainder  of  the  statute. 

Of  course,  if  the  court  should  hold  that  the  two  por- 
tions of  the  statute  are  inseparable,  then,  if  the  pro- 
viso is  unconstitutional,  the  whole  section  will  fall. 


29 

If,  however,  the  court  should,  contrary  to  this  view, 
hold  the  two  portions  of  the  section  separable,  and 
should  further  hold  that  the  proviso  is  unconstitutional 
in  that  it  is  an  attempt  by  Congress  to  confer  upon 
a  commission  a  portion  of  its  legislative  power,  or  in 
that  it  is  the  delegation  of  an  arbitrary,  irresponsible, 
and  tyrannical  power,  then  the  result  would  be  that  the 
rule  forbidding  a  lower  charge  for  the  longer  than  for 
the  shorter  haul,  would  be  absolute  and  inflexible,  and 
this  brings  me  to  the  consideration  of  the  question 
whether  an  absolute  and  inflexible  rule  on  this  sub- 
ject would  be  constitutional. 


AN  ABSOLUTE  AND  INFLEXIBLE  RULE 
UNCONSTITUTIONAL. 

We  are  met  at  the  outset,  in  considering  this  prop- 
osition, by  the  case  of  Louisville  &  Nashville  R.  R.  Co. 
vs,  Kentucky,  183  U.  S.,  503.  If  that  case  was  rightly 
decided,  or  is  upon  reconsideration  adhered  to,  and  is 
held  to  be  applicable  to  the  act  of  Congress  now  under 
examination,  it  will,  of  course,  be  an  end  of  the  con- 
troversy. 

It  should  be  noted,  however,  that  the  opinion  in  that 
case  is  most  unsatisfactory  and  seems  to  assert  propo- 
sitions of  constitutional  law  which  are  clearly  inde- 
fensible. 

In  its  opinion  the  court  seems  to  consider  that  the 
fact  that  the  rule  in  respect  to  the  long  and  short  haul 


30 

clause  is  contained  in  the  constitution  of  the  State, 
has  some  bearing  upon  the  question  to  be  determined. 
It  says : 

^*But,  apart  from  such  contentions  (the  con- 
tentions referred  to  being  contentions  growing 
out  of  the  contract  clause  and  the  commerce 
clause),  and  looking  only  at  the  case  of  a  com- 
pany voluntarily  formed  to  carry  on  business 
wholly  within  a  State,  we  are  unable  to  see  how 
such  a  company  can  successfully  contend  that  it 
can  be  exempted  by  the  courts  from  the  opera- 
tion of  the  constitution  of  the  State.'' 

The  Louisville  &  Nashville  Eailroad  Company  had 
been  chartered  and  had  been  constructed  long  before 
the  constitution  of  the  State  of  Kentucky  then  being 
considered  was  adopted,  and,  therefore,  there  was  no 
question  in  the  case  of  the  railroad  company  holding 
its  property  rights  subject  to  rules  in  respect  thereto 
established  by  a  constitution  in  force  at  the  time  of  and 
before  they  were  acquired. 

It  would  seem,  therefore,  that  the  proposition  of 
the  court  just  stated  would  have  no  relevancy  to  the 
question  under  consideration,  unless  it  were  proposed 
to  assert  that  a  property  right  of  a  corporation  organ- 
ized under  the  laws  of  a  State  may  be  violated  by  its 
constitutional  provisions  thereafter  enacted,  and  yet 
such  a  proposition  is  so  clearly  opposed  to  all  the  de- 
cisions of  the  Supreme  Court  itself,  which  uniformly 
hold  that  a  State  cannot  violate  the  14th  Amendment 
to  the  Federal  Constitution  by  its  own  constitution  any 


31 

more  than  it  can  by  its  statutes,  or  by  any  other  agency 

of  the  State,  that  it  seems  impossible  to  suppose  that 

any  view  of  this  sort  was  in  the  mind  of  the  court. 

Eailroad  Company  vs,  McClure,  10  Wall.,  511, 

515; 
Gunn  vs.  Barry,  15  Wall.,  610,  623. 
New  Orleans  Gas  Co.  vs,  Louisiana  Light  Co., 

115  U.  S.,  650,  672; 
Bier  vs.  McGehee,  148  U.  S.,  137,  140. 

That  the  court  was,  in  its  opinion,  however,  laying 
some  especial  stress  upon  the  fact  that  the  provision  in 
question  was  contained  in  the  State's  constitution  is 
emphasized  by  the  following  quotation  from  the 
court's  opinion: 

**When  citizens  of  Kentucky  voluntarily  seek 
and  obtain  a  grant  from  the  State  of  a  charter 
that  it  takes,  holds,  and  operates  its  right  sub- 
ject to  the  constitutional  inhibition  we  are  con- 
sidering, and  are  without  power  to  challenge  its 
validity. ' ' 

It  seems  impossible  to  suppose  that  the  court  in- 
tended by  this  expression  to  question  the  right  of  a 
railroad  company  to  challenge  the  validity  of  the  pro- 
vision of  the  State  constitution  referred  to,  or  any 
other  provision  of  that  constitution,  if  the  effect  of  the 
challenged  provision  was  to  deprive  it  of  its  property 
without  due  process  of  law,  or  to  deny  to  it  the  equal 
protection   of   the   laws   contrary   to    the   fourteenth 


32 

Amendment  to  the  Federal  Constitution,  and  yet  why 
should  this  reference  to  the  State  constitution  be  made 
unless  it,  in  the  mind  of  the  court,  had  some  efficacy 
differentiating  it  from  other  forms  of  State  action,  in 
relation  to  the  question  of  whether  or  not  a  property 
right  of  the  railroad  company  was  violated.  Does  it 
not  seem  that  the  court  in  making  this  decision  was 
acting  on  the  theory  that  the  constitution  of  Kentucky, 
enacted  after  the  Louisville  and  Nashville  Railroad 
Company  had  acquired  its  property,  qualified  in  some 
way  that  company's  rights  in  its  property  and  to  some 
extent  deprived  the  company  of  its  right  to  the  use  and 
enjoyment  of  its  property? 

While  this  would  seem  to  be  the  necessary  conse- 
quence of  the  emphasis  laid  upon  the  constitution  of 
the  State  in  the  opinion  of  the  court,  still  the  court 
seems  to  go  on  to  consider,  in  a  way,  whether  the  right 
to  charge  less  for  a  longer  than  for  a  shorter  haul  is  a 
property  right  protected  by  the  Federal  Constitution, 
but,  in  determining  that  question,  it  gives  no  reason 
except  that  the  company  holds  its  property  subject  to 
the  constitution  of  the  State.     It  says : 

**What  we  now  say  is,  that  a  State  corpora- 
tion, voluntarily  formed,  cannot  exempt  itself 
from  the  control  reserved  to  itself  by  the  State 
by  its  constitution,  and  that  the  plaintiff  in 
error,  if  not  protected  by  a  valid  contract,  can- 
not successfully  invoke  the  interposition  of  the 
Federal  courts,  in  respect  to  the  long  and  short- 
haul  clause  in  the  State  constitution,  on  the 
ground  simply  that  the  railroad  is  property. ' ' 


33 

It  would  thus  seem  that  the  fundamental  questions 
which  should  have  controlled  this  question  were  not 
considered,  or  certainly  were  not  dealt  with  in  the 
opinion  of  the  court.  Moreover,  it  should  be  noted 
that  the  reason  given  by  the  court  in  its  decision  seems 
to  refer  the  power  exercised  by  the  State  to  the  power 
impliedly  reserved  in  its  constitution  to  deal  with  cor- 
porations organized  under  its  laws.  If  this  be  the 
only  reason  on  which  the  court  acted,  it  may  well  be 
questioned  whether  the  doctrine  of  that  case  will  ex- 
tend to  an  act  of  Congress  exercised  in  respect  to  a 
corporation  organized  under  the  laws  of  a  State.  How- 
ever this  may  be,  it  seems  to  me  that  the  decision  of  the 
case  is  manifestly  erroneous  and  withdraws  some  of 
the  most  substantial  and  valuable  property  rights, 
which  a  railroad  company  has,  from  the  protection  of 
the  Constitution  of  the  United  States. 

It  seems  fair  to  hope  that  a  case  so  little  considered 
and  so  inadequately  reasoned  as  the  one  now  under 
discussion  will  not,  upon  further  consideration,  be  ad- 
hered to  by  the  Supreme  Court  of  the  United  States, 
and  will  take  rank,  as  an  abandoned  precedent,  with  the 
case  of  Munn  vs,  Illinois,  94  U.  S.,  113,  which  was,  in 
effect,  overruled  by  the  Supreme  Court  in  Wabash 
E.  E.  vs,  Illinois,  118  U.  S.,  557,  and  other  cases. 

Moreover,  it  must  be  remembered  that  the  system 

of  governmental  regulation  has  been  greatly  developed 

and  advanced  since  1902,  when  this  case  was  decided. 

Legislation  on  the  subject  has  step  by  step  been  pressed 
3— E 


34 

further  and  further,  until  it  has  assumed  an  impor- 
tance at  this  day  hardly  realized  or  appreciated  ten 
years  ago.  In  this  view  of  the  larger  place  which 
governmental  regulation  has  assumed  as  a  matter  of 
fact  in  our  governmental  institutions,  it  would  seem 
proper  that  principles  announced  in  the  early  stages 
of  governmental  regulation  should,  in  view  of  their 
importance  and  of  their  far-reaching  consequences, 
be  now  reviewed  by  the  courts,  unembarrassed  by 
precedents  which  were  established  at  a  time  when  com- 
paratively little  attention  had  been  paid  to  this  subject 
and  its  underlying  principles  had  not  been  given  thor- 
ough and  scientific  examination.  It  therefore  seems 
to  me  that,  in  respect  to  no  question  possessing  such 
fundamental  and  far-reaching  consequences  in  its  in- 
fluence upon  our  institutions  and  upon  our  constitu- 
tional rights,  should  we  feel  it  is  improper  to  ask  or 
unjustifiable  to  expect  a  thorough  and  scientific  re- 
examination of  the  principles  on  which  previous  de- 
cisions have  rested. 

It  is,  therefore,  proposed  to  re-examine  this  question 
on  principle,  unembarrassed  by  a  consideration  of  the 
precedents  which  have  been  made. 

This  would  seem  to  be  especially  justifiable  where 
the  principles  asserted  in  respect  to  governmental  reg- 
ulation involve  consequences  so  far  reaching  as  prac- 
tically to  involve  throughout  the  country  the  success 
or  failure  of  railroad  operations  in  private  hands,  and, 
consequently,  the  success  or  failure  of  private  owner- 


35 

ship  of  railroad  property.  In  respect  to  this  long  and 
short  haul  clause,  it  must  be  noted  that  an  inflexible 
rule  established  by  Congress,  forbidding  a  lower 
charge  for  the  longer  haul,  would,  if  valid,  as  shown 
by  statistics  offered  by  the  Louisville  &  Nashville  Eail- 
road  Company  to  the  Interstate  Commerce  Commis- 
sion some  years  ago,  deprive  that  company  of  one- 
third  of  its  entire  freight  traffic,  and  it  is  now  esti- 
mated, by  competent  authority,  that  the  rule  in  ques- 
tion would  involve  a  deprivation  of  the  carriers  in 
southeastern  territory  of  at  least  forty  per  cent 
of  their  freight  traffic.  When  these  enormous 
figures  are  considered,  the  criticism  of  the  Kentucky 
case  hereinbefore  mentioned,  made  by  the  Hon. 
Charles  G.  Washburn,  of  Massachusetts,  on  the  floor 
of  the  House,  when  this  clause  was  under  considera- 
tion, becomes  all  the  more  striking.    He  said: 

**The  Kentucky  law  applied  to  perhaps  one- 
fourth  of  the  railroad  business  in  the  State. 
The  mileage  of  railroads  in  Kentucky  was  about 
one  and  one-half  per  cent  of  the  total  mileage 
of  the  United  States.  We  may  say,  therefore, 
roughly  speaking,  that  the  business  to  which 
the  Kentucky  long  and  short  haul  law  applied, 
was  less  than  one-half  of  one  per  cent  of  the 
total  business  of  the  railroads  in  the  United 
States.'' 

Record,  p.  4993. 

A  court,  out  of  deference  to  local  conditions  in  a 
State,  and  actuated  by  a  desire  to  uphold  the  State's 


36 

laws,  might  possibly  view  with  unconcern  an  effect  so 
comparatively  trivial  on  the  business  of  the  country, 
but  would  feel  it  necessary  to  re-examine  the  question 
if  brought  face  to  face  with  ruinous  consequences  to  so 
large  a  portion  of  the  business  of  the  transportation 
companies  as  would  be  subject  to  the  operation  of  this 
law  of  Congress. 

In  view  of  these  immense  consequences,  we  feel  jus« 
tified  in  re-examining  this  question  on  principle. 

In  pursuing  this  inquiry,  there  are  certain  funda- 
mental propositions  which  do  not  seem,  either  in  the 
light  of  reason  or  in  the  light  of  authority,  to  be  open 
to  question. 

It  seems  to  be  beyond  question  that  the  use  of  prop- 
erty is  property,  and  that  to  deprive  a  carrier  of  the 
use  of  its  property  is  to  deprive  it  of  the  property 
itself.  This  is  not  only  true  in  fact,  but  has  been  re- 
peatedly held  by  the  Supreme  Court. 

Thus  it  was  said  by  that  court  in  Chicago,  Milwau- 
kee &  St.  Paul  Railway  Co.  vs,  Minnesota,  134  U.  S., 
458: 

**If  the  company  is  deprived  of  the  power  of 
charging  reasonable  rates  for  the  use  of  its 
property,  and  such  deprivation  takes  place  in 
the  absence  of  an  investigation  by  judicial  ma- 
chinery, it  is  deprived  of  the  lawful  use  of  its 
property,  and  thus,  in  substance  and  effect,  of 
the  property  itself,  without  due  process  of  law 
and  in  violation  of  the  Constitution  of  the 
United  States;  and  in  so  far  as  it  is  thus  de- 
prived, while  other  persons  are  permitted  to  re- 


37 

ceive  reasonable  profits  upon  their  invested 
capital,  the  company  is  deprived  of  the  equal 
protection  of  the  laws." 

And  in  Cleveland,  etc.,  vs.  Backus,  154  U.  S.,  445,  it 
is  said: 

**The  value  of  property  results  from  the  use 
to  which  it  is  put,  and  varies  with  the  profitable- 
ness of  that  use,  present  and  prospective,  actual 
and  anticipated.  There  is  no  pecuniary  value 
outside  of  that  which  results  from  such  use." 

And  in  Monongahela  Navigation  Co.   vs.   United 
States,  148  U.  S.,  328,  the  court  says : 

'*The  value  of  property,  generally  speaking, 
is  determined  by  its  productiveness — the  profits 
which  its  use  brings  to  the  owner." 

Again: 

**For  each  separate  use  of  one's  property  by 
others,  the  owner  is  entitled  to  a  reasonable  com- 
pensation, and  the  number  and  amount  of  such 
uses  determines  the  productiveness  and  the 
earnings  of  the  property,  and  therefore,  largely 
its  value." 

The  same  doctrine  is  stated  in  the  case  of  In  re  Mar- 
shall, 102  Fed.,  323,  where  it  is  said: 

**The  constitutional  guaranty,  said  the  Court 
of  Appeals  of  New  York  in  Re  Jacobs,  98  N.  Y., 
105,  that  no  person  shall  be  deprived  of  prop- 
erty without  due  process  of  law,  may  be  violated 
without  the  physical  taking  of  property  for  pub- 


38 

lie  or  private  use.  Property  may  be  destroyed 
or  its  value  may  be  annihilated.  It  is  owned 
and  kept  for  some  useful  purpose,  and  it  has  no 
value  unless  it  can  be  used.  Its  capability  for 
enjoyment  and  adaptability  to  some  use  are  es- 
sential characteristics  and  attributes  without 
which  property  cannot  be  conceived,  and  hence 
any  law  which  destroys  it  or  its  value,  or  takes 
away  any  of  its  essential  attributes,  deprives 
the  owner  of  his  property.'' 

It  would  seem,  therefore,  unquestionable  that  every 
owner  of  property  has  a  property  right,  protected  by 
the  Constitution,  to  use  it  in  every  legitimate  way. 

It  would  seem  equally  certain  that  the  use  of  prop- 
erty which  is  inherently  proper  and  in  the  public  in- 
terest, cannot  be  made  illegal  by  a  statute,  for,  if  it 
could  be  thus  made  illegal,  all  that  a  legislature  would 
have  to  do  in  order  to  confiscate  property  would  be 
to  declare  illegal  all  uses  to  which  it  might  be  put,  and, 
by  force  of  such  statutory  declaration,  the  owner  of 
the  property  would  be  effectively  deprived  of  all  protec- 
tion from  the  Constitution.  That  a  statute  cannot 
make  a  use  of  property  illegal  which  is  wholly  proper, 
is  shown  by  innumerable  decisions  of  the  Supreme 
Court  of  the  United  States.  For  example,  many  of 
the  States  have  passed  laws  declaring  that  it  shall  be 
illegal  for  railroads  to  use  their  property  for  more 
than  a  certain  designated  rate.  The  Supreme  Court 
has  repeatedly  held  that  this  legislative  declaration 
of  what  would  be  illegal  did  not  make  it  illegal  con- 


39 

trary  to  the  fact,  because  a  property  right  was  in- 
volved and  the  effect  of  snch  holding  would  be  to  de- 
prive the  carrier  of  the  beneficial  use  of  its  property, 
in  violation  of  the  Constitution.  This  same  proposi-* 
tion  is  established  by  all  the  cases  defining  the  proper 
scope  and  use  of  the  police  power. 

In  respect  to  this,  I  print  in  the  appendix,  as  Appen- 
dix A,  a  valuable  note  made  by  my  assistant,  Mr.  John 
K.  Graves. 

It  is  a  sound  principle  of  economics,  and  is  admitted 
by  both  the  Interstate  Commerce  Commission  and  by 
the  Supreme  Court  of  the  United  States,  that,  in  no 
case  where  substantial  competition  exists,  can  a  rail- 
road property  be  used  except  in  recognition  of,  and  in 
obedience  to,  the  law  of  competition.  As  the  chairman 
of  the  committee,  who  introduced  the  original  Inter- 
state Commerce  Bill,  stated  on  the  floor:  **It  (the  law 
of  competition)  is  stronger  than  any  law  we  can 
make. ' ' 

Thus  it  is  stated  by  Judge  Cooley : 

**Low  rates  are  a  necessity  of  the  situation, 
and  if  railroads  compete  with  water  transporta- 
tion, either  on  the  ocean  or  on  the  navigable 
rivers,  they  have  no  choice  but  to  accept  such 
rates.  To  compel  the  roads  to  observe  strictly 
the  general  rule  laid  down  by  the  fourth  section 
would  necessitate  their  abandonment  of  some 
classes  of  business  in  which  their  competition 
with  water  transportation  is  now  of  public  im- 
portance. ' ' 


40 

And  again: 

*'The  fact  still  remains  that  they  must  either 
be  allowed  to  compete  with  vessel  owners  and 
make  low  charges  for  the  purpose,  or  they  must 
leave  vessel  owners  in  possession  of  the  busi- 
ness without  the  check  upon  charges  which  com- 
petition would  afford.*' 

This  same  view  is  approved  by  the  Supreme  Court 
of  the  United  States.    It  says : 

^^It  must  also  be  conceded  that  the  defendant 
would  lose  the  foreign  traffic,  by  reason  of  the 
competition  referred  to,  and  the  revenue  de- 
rived therefrom,  unless  it  carries  at  the  lower 
rates  and  by  so  doing  is  enabled  to  get  part  of 
it.** 

Texas  &  Pacific  Ey.   Co.  vs.  Interstate 
Commerce  Commission,  162  U.  S.,  236. 

This  is  also  apparent  from  the  following  decisions 
of  the  Supreme  Court : 

Interstate  Com.   Com*n  vs,  Alabama  Midland 

Ry.  Co.,  168  U.  S.,  144; 
Louisville  &  Nashville  R.  R.  Co.  vs.  Behlmer, 

175U.  S.,  653; 
East.  Tenn.,  etc.,  Ry.  Co.  vs.  Interstate  Com. 
Com*n,  181  U.  S.,  1. 

It  is  likewise  true  that  this  use  of  a  carrier's  prop- 
erty, in  accordance  with  and  in  obedience  to  an  irre- 
sistible law  of  economics,  is  right  in  itself  and  is  in 
the  interest  of  the  public. 


41 

In  connection  with  this  view  of  the  subject,  the  fol- 
lowing expressions  from  Judge  Cooley  in  the  Louis- 
ville &  Nashville  case,  examined  by  the  Commission  in 
1887,  are  of  interest : 

"Every  railroad  company  ought,  when  it  is 
practicable,  to  so  arrange  its  tariffs  that  the  bur- 
den upon  freights  shall  be  proportional  on  all 
portions  of  its  line  and  with  a  view  to  revenue 
sufficient  to  meet  all  the  items  of  current  ex- 
pense, including  the  cost  of  keeping  up  the  road, 
buildings,  and  equipment,  and  of  returning  a 
fair  profit  to  owners.  But  it  is  obvious  that,  in 
some  cases,  when  there  is  water  competition  at 
leading  points,  it  may  be  impossible  to  make 
some  portion  of  the  traffic  pay  its  equal  propor- 
tion of  the  whole  cost.  If  it  can  then  be  made 
to  pay  anything  toward  the  cost,  above  what  the 
taking  of  it  would  add  to  the  expense,  the  rail- 
road ought  not,  in  general,  to  be  forced  to  reject 
it,  since  the  surplus,  under  such  circumstances, 
would  be  profit.  As  has  been  tersely  said  by 
M.  de  la  Gournerie,  formerly  inspector-general 
of  bridges  and  railways  in  France,  a  railroad 
^  ought  not  to  neglect  any  traffic  of  a  kind  that 
will  increase  its  receipts  more  than  its  ex- 
penses ' ;  and  long-haul  traffic  which  can  only  be 
had  on  these  terms  may  sometimes  be  taken 
without  wronging  any  one,  when,  to  carry  all 
traffic,  or  even  the  major  part  of  it,  at  the  like 
rates,  would  be  simply  ruinous.  But  we  desire 
to  apply  generally  to  every  kind  of  competition 
herein  discussed  the  observation  above  made, 
that  when  competition  leads  to  the  transporta- 
tion of  property  below  actual  cost,  fairly  com- 


42 

puted,  it  ceases  to  be  legitimate.  Fair  and 
reasonable  competition  is  a  public  benefit;  ex- 
cessive and  unreasonable  competition  is  a  public 
injury.  Competition  is  to  be  regulated,  not 
abolished.  The  other  sections  of  the  law  of 
themselves  imply  ample  authority  for  its  regu- 
lation, and,  in  connection  with  the  fourth  sec- 
tion, support  the  interpretation  that  it  is  wholly 
inadmissible  to  press  competition  to  a  point 
where  expenses  are  increased  beyond  the  in- 
crease of  income.^' 

And  in  one  of  the  quotations  above  made  from  this 
same  opinion  it  is  shown  that — 

**to  compel  roads  to  observe  strictly  the  general 
rule  laid  down  by  the  fourth  section  would  ne- 
cessitate their  abandonment  of  some  classes  of 
business  in  which  their  competition  with  water 
transportation  is  now  of  public  importance.'' 

And  as  is  said  by  the  Supreme  Court : 

**It  is  self-evident  that  many  cases  may  and 
do  arise  where,  although  the  object  of  the  car- 
riers is  to  secure  the  traffic  for  their  own  pur- 
poses and  upon  their  own  lines,  yet,  neverthe- 
less, the  very  fact  that  they  seek,  by  the  charges 
they  make,  to  secure  it,  operates  in  the  interests 
of  the  public.'' 

Texas  &  Pacific  Ey.  Co.  vs.  Int.  Com. 
Com.,  162  U.  S.,  218. 

The  main  fact  which  makes  the  participation  of  the 
rail  carrier  in  this  competitive  traffic  to  the  interest 
of  the  public  is  that,  if  a  carrier  is  excluded  from  any 


43 

material  portion  of  traffic  which  pays  a  margin  of 
profit,  then  the  loss  which  such  exclusion  involves  must 
be  put  on  the  remaining  portion  of  its  traffic  and  in- 
crease the  cost  to  the  public  interested  in  such  re- 
mainder. 

This  fact  is  thus  stated  by  Justice  White,  in  the 
case  of  East  Tennessee,  etc.,  Ey.  Co.  vs.  Interstate 
Commerce  Commission,  181  U.  S.,  20: 

**  Applying  the  principle  to  which  we  have  ad- 
verted to  the  condition  as  above  stated,  it  is  ap- 
parent that  if  the  carrier  was  prevented  under 
the  circumstances  from  meeting  the  competitive 
rate  at  Nashville,  when  it  could  be  done  at  a 
margin  of  profit  over  the  cost  of  transportation, 
it  would  produce  the  very  discrimination  which 
would  spring  from  allowing  the  carrier  to  meet 
a  competitive  rate  where  the  traffic  must  be  car- 
ried at  an  actual  loss.  To  compel  the  carriers  to 
desist  from  all  Nashville  traffic  under  the  cir- 
cumstances stated  would  simply  result  in  de- 
flecting the  traffic  to  Nashville  to  other  routes, 
and  thus  entail  upon  the  carriers  who  were  in- 
hibited from  meeting  the  competition,  although 
they  could  do  so  at  a  margin  of  profit,  the  loss 
which  would  arise  from  the  disappearance  of 
such  business,  without  anywise  benefiting  the 
public." 

In  view  of  the  foregoing  considerations,  and  of  all 
the  decisions  of  the  Supreme  Court,  the  following  prin- 
ciples may  be  stated  as  true,  as  self-evident  and  as  fun- 
damental : 


44 

First.  That  the  use  of  property  is  property  within 
the  meaning  of  the  Fifth  Amendment  to  the  Consti- 
tution ; 

Second.  That  a  use  of  property  is  legitimate  which 
is  in  accordance  with,  and  in  obedience  to,  a  fair  rule 
of  trade  and  an  irresistible  law  of  economics; 

Third.  That  such  use  is  not  only  proper  and  legiti- 
mate in  itself,  but  is  in  the  interest  of  the  public; 
Fourth.  That  such  use  cannot  be  taken  away  from 
a  carrier  by  legislation  of  Congress  without  a  viola- 
tion of  the  Fifth  Amendment  to  the  Constitution. 
The  case  may  be  stated  thus : 

A  carrier,  in  accordance  with  the  law,  has  con- 
structed a  railroad  between  two  competitive  points 
through  a  number  of  non-competitive  points.    It  is  not 
the  short  rail  line.     It  is  in  competition  with  water 
carriers  on  the  ocean  which  are  not  subject  to  the  Act 
to    Regulate    Commerce.     It    is    subject  to  the  con- 
trolling   competition    of    short    line    rail    carriers. 
It    is    subject    to    controlling  competition    of    com-  - 
modities    and    of    markets.      It     seeks     to    partici- 
pate   in   competitive    traffic    and    to    make     a     rate 
between  its  competitive  points  lower  than  to  inter- 
mediate points,  which  gives  to  it  some  margin  of  profit 
and  which  is  made  necessary  by  the  competitive  condi- 
tions.    All  its  rates  to  intermediate  non-competitive 
points  are  reasonable  in  and  of  themselves.    The  cir- 
cumstances  of  the   service  between  the  competitive 
points  so  differ  from  the  circumstances  of  the  service 


45 

to  intermediate  non-competitive  points  that  the  differ- 
ence in  charge  **is  in  exact  conformity  with  the  differ- 
ence of  circumstances/'  In  such  a  case  could  Con- 
gress prevent  the  carrier  from  carrying  between  the 
two  competitive  points  at  the  rate  mentioned? 

In  considering  this  question  it  must  be  remembered 
that  Congress,  in  the  language  of  Judge  Cooley,  has 
studiously  omitted  to  bring  the  steamboat  and  other 
independent  water  lines  within  its  control  and  must, 
therefore,  have  contemplated  and  approved  the  con- 
tinuance of  that  kind  of  competition. 

It  is  likewise  spending  millions  of  dollars  annually 
of  the  public  money  in  the  improvement  of  rivers  and 
harbors  for  the  purpose  of  making  such  competition 
more  substantial  and  effective. 

Under  the  act,  likewise,  the  rate  in  question  is  per- 
mitted and  is  possible  over  the  shorter  line  of  rail- 
road. Moreover,  the  rate  is  necessary  to  the  carrier  in 
question  because  of  economic  conditions  produced  at 
competitive  points  by  competition  of  products  and 
competition  of  markets.  If,  under  these  circumstances, 
the  carrier  can  be  prevented  from  carrying  between 
the  two  competitive  points  at  the  rate  proposed,  it  is 
in  effect  prevented  from  using  its  property  at  all  be- 
tween those  points.  It  is  certainly  prevented  from 
using  it  in  fair  recognition  of,  and  in  obedience  to,  a 
controlling  economic  law,  which  Congress  does  not 
undertake  to  alter  or  destroy,  but  the  application  of 
which  to  the  conditions  supposed,  it  is,  by  appropri- 


46 

ations  from  the  public  treasury,  fostering  and 
building  up.  If,  therefore.  Congress  has  the  consti- 
tutional power  to  prevent  this  legitimate  commercial 
use  of  property,  it  has  in  practical  effect  the  power  of 
confiscation. 

The  only  alternative  to  this  consequence  would  be  to 
say  that  Congress  does  not  prevent  the  use  of  the 
carrier's  property  between  two  competitive  points  at 
a  competitive  rate,  but  in  such  case  only  requires  that 
the  intermediate  rate  should  be  made  no  higher.  This, 
however,  in  the  case  supposed,  would  simply  shift  the 
method  of  confiscation.  While  permitting  the  carrier 
to  participate  in  the  competitive  trafiic  at  the  rates 
found  necessary  to  such  participation,  and  thus  not 
confiscating  that  use,  the  effect  would  be  to  deprive  the 
carrier,  in  the  case  supposed,  of  the  right  to  charge 
reasonable,  and  not  unduly  discriminatory  rates,  to 
intermediate  points.  This  latter  right  is  a  right  of 
property  as  distinctly  as  the  other,  and  in  preventing 
the  use  of  the  property  at  intermediate  points  at 
reasonable  rates  Congress  would  be  taking  away  from 
the  carrier  a  legitimate  use  of  its  property. 

In  reaching  this  conclusion,  I  am  not  forgetful  of 
the  fact  that  the  decisions  thus  far  have  made  the  cri- 
terion of  confiscation  to  be  a  fair  return  upon  the  car- 
rier's property,  and  have  not  yet  adopted  as  a  cri- 
terion a  fair  compensation  for  each  individual  service. 
In  respect  to  this,  however,  it  should  be  remarked 
again  that  the  extent  of  governmental  regulation  has 


47 

become  so  far  reaching,  and  both  its  extent  and  its 
limitations  so  important,  that  the  principles  which 
have  heretofore  been  announced  in  respect  to  it  are 
legitimately  entitled  to  a  re-examination  in  the  light  of 
the  greater  governmental  authority  which  is  claimed. 
On  principle  it  is  true,  as  has  been  announced  by  the 
Supreme  Court,  that — 

**If  a  company  is  deprived  of  the  power  of 
charging  reasonable  rates  for  the  use  of  its 
property,  and  such  deprivation  takes  place  in 
the  absence  of  an  investigation  by  judicial  ma- 
chinery, it  is  deprived  of  the  lawful  use  of  its 
property,  and  thus,  in  substance  and  effect,  of 
the  property  itself  (Chicago,  Milwaukee  &  St. 
Paul  Eailway  Co.  vs.  Minn.,  134  U.  S.,  458); 
and  that — 

**for  each  separate  use  of  one's  property  by 
others,  the  owner  is  entitled  to  a  reasonable 
compensation,  and  the  number  and  amount  of 
such  uses  determines  the  productiveness  and  the 
earnings  of  the  property,  and,  therefore,  largely 
its  value *'  (Monongahela  Nav.  Co.  vs.  United' 
States,  184  U.  S.,  328). 


In  other  words,  a  carrier  has  a  right  to  do  business ; 
it  has  a  right  to  charge  for  each  separate  service  that 
which  is  reasonable  compensation  therefor,  and  the 
legislature  may  not  deny  it  such  reasonable  com- 
pensation and  may  not  interfere  simply  because  out  of 
the  multitude  of  its  transactions  the  amount  of  its 
profits  is  large. 


48 

The  rule  by  which  the  value  of  all  other  property 
than  that  subjected  to  a  public  use  is  arrived  at  is 
to  ascertain  its  reasonable  earning  capacity,  and,  by 
capitalizing  that,  to  ascertain  the  property  value. 

The  rule  heretofore  acted  on  by  the  courts,  in  re- 
spect to  properties  subjected  to  a  public  use,  is  that 
the  value  of  the  property  must  be  first  arrived  at, 
and  from  that  deduce  its  reasonable  earning  capacity. 
An  arbitrary  reversal  of  the  method  applicable  to  all 
other  property,  whether  by  legislative  authority  or  by 
judicial  decree,  is,  as  applied  to  this  one  class  of  prop- 
erty, a  manifest  deprivation  of  a  valuable  interest  in 
property,  as  well  as  a  denial  of  the  equal  protection 
of  the  laws.  There  can  be  no  difference  between  prop- 
erty devoted  to  a  public  use  and  other  private  prop- 
erty except  such  difference  as  is  measured  by  the 
legitimate  consequences  of  the  public  use.  The  in- 
terest of  the  public,  in  the  property  of  a  carrier  and 
in  its  transactions,  can  only  be  that  the  '  car- 
rier shall  not  charge  more  for  a  service  than 
a  reasonable  compensation  therefor;  that  it  shall 
not  unduly  discriminate  as  between  persons  or 
localities  or  commodities,  or  subject  any  of  them 
to  undue  prejudice  or  disadvantage,  and  that  its 
facilities  shall  be  adequate.  Every  power  of  regula- 
tion asserted  by  the  Government,  in  respect  to  private 
property  subject  to  a  public  use,  must  be  measured 
and  tested  by  whether  or  not  it  legitimately  tends  to 
secure  one  or  other  of  these  results.     If  the  carrier 


performs  faithfully  these  three  duties,  then,  subject 
to  them,  its  property  is  its  own  and  is  beyond  the 
reach  of  governmental  interference.  In  other  words, 
when  the  thing  is  done  that  is  required  by  the  Act  to 
Regulate  Commerce  to  be  done  by  the  Commission, 
namely,  when  there  is  a  determination,  in  the  language 
of  the  first  section,  that  the  rate  of  the  carrier  is  just 
and  reasonable  for  the  service  rendered,  and,  as  re- 
quired by  other  sections,  that  there  is  no  unjust  dis- 
crimination as  between  persons  or  localities  or  com- 
modities, then  there  exists  a  property  right  in  the 
carrier  to  charge  and  receive  this  reasonable  rate,  and 
its  right  to  do  so  cannot  be  taken  away  or  affected  by 
the  amount  of  the  return  upon  its  property.  It  may  be 
that  it  cannot  make  a  reasonable  return  on  its  prop- 
erty by  charging  reasonable  rates.  If  so,  the  Govern- 
ment need  not  and  cannot  give  it  that  power.  It  may 
be  that,  by  reason  of  favorable  and  wise  design  and 
good  management,  it  is  able,  by  charging  a  reasonable 
rate  for  each  of  its  services,  to  make  a  large  profit 
on  the  amount>invested.  This  profit  in  every  one  of  its 
factors  is  beyond  the  reach  of  governmental  power, 
and  is  the  private  property  of  the  owners. 

If  the  subject  be  viewed  from  another  standpoint  the 
result  is  the  same. 

Let  us  suppose  a  case  where  the  return  upon  a  prop- 
erty is  not  more  than  a  reasonable  return  on  the 
amount  invested,  and  let  us  suppose  that  this  return 
results  from  a  system  of  rates,  some  of  which  are  too 
4— E 


50     • 

low  and  some  of  which  are  too  high.  In  such  a  case 
the  carrier  cannot  justify  those  that  are  too  high  by 
showing  that  the  average  is  right,  for  that  would  be 
throwing  unjustly  on  the  class  of  traffic  bearing  the 
rates  which  are  too  high  a  burden  unjustly  taken  from 
the  other  class  of  traffic  on  which  the  charges  are  un 
duly  low.  The  Government  could  not  maintain  or  re- 
quire rates  that  are  too  low  for  the  service  on  the 
ground  that  other  rates  of  the  carrier  are  too  high,  and 
that  the  average  makes  only  a  proper  return  upon  the 
property,  for  that  would  be  creating  an  unlawful  dis- 
crimination between  the  two  classes  of  traffic  to  the 
prejudice  of  those  that  were  charged  too  much.  It  is, 
therefore,  manifest  that  any  philosophic  and  just  reg 
ulation  of  this  subject,  in  which  the  interests  of  the 
public  are  duly  preserved,  and  in  which  the  property 
rights  of  the  carrier  are  duly  respected,  must  arise 
from  a  proper  and  just  adjustment  of  each  rate  to  each 
service.  This  necessity  grows  out  of  the  nature  of  the 
situation. 

It  is  no  answer  to  say  that  it  is  difficult  to  de- 
termine what  is  a  reasonable  compensation  for  the 
service.  This  very  thing  is  required  of  the  Interstate 
Commerce  Commission  by  the  Act  to  Regulate  Com- 
merce whenever  the  reasonableness  and  justice  of  a 
rate  is  brought  to  its  consideration.  The  statute  re- 
quires it  to  determine  whether  that  rate  is  just  and 
reasonable  for  the  service.  It  is  manifestly  impossi- 
ble, in  respect  to  any  individual  rate,  for  the  Commis- 


51 

sion  to  be  guided  by  the  value  of  the  property  and  the 
total  returns  therefrom.  It  is  not  denied  that  the  de- 
termination of  the  question  of  reasonableness  is  diffi- 
cult, but  the  application  of  a  false  standard  is  never 
justified  by  the  difficulty  of  applying  the  true  one,  and 
in  this  connection  it  is  apparent  that  Congress  itself 
has  applied  the  true  one  in  the  Act  to  Regulate  Com- 
merce. If  the  law-making  body  can  ascertain  and  de- 
clare what  rate  is  reasonable,  there  is  no  reason  why 
the  courts,  with  methods  at  least  equally  adequate, 
should  not  be  able  to  do  so.  The  suggestion  made 
in  this  note  is  not  as  to  the  application  of  a 
new  standard,  but  merely  that,  when  the  stand- 
ard created  by  Congress  itself  in  respect  to 
the  powers  of  the  Interstate  Commerce  Commis- 
sion is  applied,  the  result  of  the  proper  application 
of  that  standard  is  to  bring  the  case  within  the  protec- 
tion of  the  Constitution,  and  not  to  give  it  merely  a 
statutory  sanction.  Whether  or  not  the  Commission 
has  done  this  in  any  case  is  a  judicial  question. 

In  respect  to  the  difficulty  of  the  application  of  this 
standard,  it  must  likewise  be  remembered  that  it  is  no 
more  difficult  to  apply  the  test  of  reasonableness  to  a 
rate  than  it  is  to  apply  it  to  most  other  services.  The 
whole  principle  of  quantum  meruit  at  the  common  law 
is  built  up  on  the  necessity  of  determining,  by  courts 
and  juries,  what  is  reasonable,  and  the  same  test  of 
what  is  reasonable  in  respect  to  any  other  service 
would  apply  in  the  determination  of  what  is  reasonable 


52 

in  respect  to  the  service  of  a  carrier.  The  test  of 
usage,  the  test  of  comparison,  the  test  of  expert  opin- 
ion, the  test  of  effect  npon  commerce  and  upon  the 
proper  distribution  of  burdens  and  advantages  be- 
tween all  interested,  and  other  tests  which  might 
be  enumerated,  would  apply  to  and  determine  the 
question  of  reasonableness  in  such  a  case. 

As  interesting  in  this  connection,  I  print  in  the  ap- 
pendix, as  Appendix  B,  an  extract  from  a  recent  ad- 
dress of  Mr.  W.  W.  Finley,  President  of  Southern  Eail- 
way  Company. 

The  foregoing  considerations  seem  to  justify  the 
conclusion  that  an  inflexible  rule  forbidding  a  smaller 
charge  for  the  longer  distance,  notwithstanding  the 
fact  that  the  smaller  charge  for  the  longer  distance 
would  be  justified  by  the  laws  of  trade  and  necessitated 
by  economic  forces,  would  be  an  unconstitutional  in- 
vasion of  the  property  rights  of  the  carrier. 

If  this  be  true,  and  if  likewise  true  that  an  unre- 
stricted and  unmeasured  discretion  in  the  Commission 
would  be  an  unconstitutional  delegation  of  legislative 
power,  then  it  would  seem  that  the  only  constitutional 
interpretation  of  the  fourth  section  as  amended  would 
be  that  given  in  the  first  part  of  this  paper,  and  it  is 
believed  that  the  interpretation  there  given  is  the 
proper  construction  of  the  law. 

EespectfuUy  submitted. 

Alfred  P.  Thom. 

WASHmoTON,  D.  C,  February,  1911. 


APPENDIX  A. 


THE    FEDERAL    LONG    AND    SHORT    HAUL 
CLAUSE  AND  THE  FIFTH  AMENDMENT. 


Notes  by  John  K.  Graves. 


Mr.  Thom  : 

The  question  submitted  is,  whether,  assuming  that 
the  long  and  short  haul  clause  (Clause  4  of  the  Act  to 
Regulate  Commerce)  gives  the  Commission  arbitrary 
power  to  allow  or  refuse  to  allow  the  carrier  to  charge 
less  for  the  haul  to  the  longer  distance  destination 
than  for  the  haul  to  the  shorter  distance  point,  even 
though  controlling  competition  exist  at  the  longer 
distance  point,  the  clause,  as  so  construed,  violates 
the  Fifth  Amendment  to  the  Constitution  of  the 
United  States. 

There  will  not  be  considered  in  these  notes  any  ques- 
tion with  respect  to  the  effect  of  any  action  of  the 
Commission  under  the  clause,  as  resulting  in  an  in- 
adequate return  to  the  carrier  upon  the  value 
of  its  entire  property;  and  the  short-haul  rate  will 
be  assumed  to  be  reasonable.  Also,  no  question 
is  raised  as  to  delegation  of  legislative  power.  **The 
clause''  as  hereinafter  used,  without  explanation,  will 
mean  the  Federal  long  and  short  haul  clause  construed 
as  above  indicated. 

The  question  put  seems  to  resolve  itself  into  whether 
Congress  can  enact  a  rigid  long  and  short  haul  clause. 
The  clause  would  give  the  Conmiission  arbitrary  and 

(63) 


54 

discretionary  power  in  the  premises,  which  means 
that  there  could  be  no  review  of  its  action  in  the 
courts.  Whether,  under  the  Minnesota  case  in  134 
U.  S.,  such  an  enactment  could  stand,  depends  upon 
whether  the  constitutional  rights  of  the  carrier  could 
be  taken  away  by  any  action  of  the  Commission  which 
the  clause  gives  it  the  power  to  take.  The  clause  em- 
powers the  Commission  to  refuse  to  allow  the  carrier 
to  charge  less  to  the  longer  distance  point,  though  con- 
trolling competition  exists  there,  and  though  the 
shorter  distance  rate  is  reasonable  in  and  of  itself, 
thus  inevitably  depriving  the  carrier  of  traffic  to  the 
longer  distance  point.  If  such  an  exercise  of  power 
by  the  agent  of  Congress  violates  the  Fifth  Amend- 
ment, then  the  act  authorizing  such  exercise  of  power 
must  fall.  It  will  not  do  to  undertake  to  save  the  act, 
as  did  the  Kentucky  Court  of  Appeals  in  the  case  of 
Louisville  &  Nashville  Eailroad  Co.  vs.  Common- 
wealth, 51  S.  W.,  164,  where,  in  defending  the  Ken- 
tucky constitutional  provision  (which  is  identical  with 
the  Federal  long  and  short  haul  clause  as  it  was  be- 
fore the  recent  amendment)  against  the  charge  that  it 
violated  the  Fourteenth  Amendment  if  controlling 
competition  at  the  longer  distance  point  were  held  (as 
it  had  been  by  the  Kentucky  courts)  not  to  create  dis- 
similar circumstances,  the  court  sustained  the  pro- 
vision on  the  theory  that  the  Commission  was 
empowered  to  make  any  exception  that  it  desired, 
and  that  it  was  not  to  be  supposed  that  it  would 
do  injustice  to  the  carrier.  If  the  exercise  of 
the  discretion  reposed  in  the  Commission  could  in 
any  case  deprive  the  carrier  of  its  constitu- 
tionar  rights,  then  the  Kentucky  constitutional  pro- 
vision should  have  been  wiped  out,  as  authorizing  an 
invasion  of  the  carrier's  constitutional  rights  without 
recourse  to  the  refuge  of  the  courts,  if  the  Minnesota 


55 

case  is  still  of  any  efficacy  and  if  this  land  can  still 
boast  a  government  of  laws,  not  of  men. 

If  the  Supreme  Court  was  right  in  condemning  the 
statute  in  United  States  vs.  Eeese,  92  U.  S.,  214,  221, 
where  Chief  Justice  Waite  remarked  that, 

'*It  would  certainly  be  dangerous  if  the  legis- 
lature could  set  a  net  large  enough  to  catch  all 
possible  offenders  and  leave  it  to  the  courts  to 
step  inside  and  say  who  could  be  rightfully  de- 
tained and  who  should  be  set  at  large, ' ' 

an  act  of  Congress  giving  free  rein  to  an  administra- 
tive body  not  capable  of  affording  due  process  of  law 
to  take  away  property  rights  must  be  condenmed. 

The  question  to  be  determined  is,  then.  Would  a 
rigid  long  and  short  haul  clause  enacted  by  Congress 
deprive  the  carrier  of  its  property  in  violation  of  the 
Fifth  Amendment? 

There  is  a  very  unpleasant  decision  in  183  U.  S.  (p. 
503) — Louisville  &  Nashville  E.  Co.  vs.  Kentucky — 
involving  the  validity,  under  the  Fourteenth  Amend- 
ment, of  the  Kentucky  constitutional  provision,  which 
is  identical  with  the  Federal  clause  as  it  existed  prior 
to  the  recent  amendment.  As  hereinbefore  indicated, 
the  Kentucky  courts  had  excluded  controlling  competi- 
tion at  the  long  distance  point  as  a  circumstance  cre- 
ating dissimilarity  of  conditions.  The  Supreme  Court 
upheld  the  clause  as  thus  construed,  saying  (p.  514) : 

*  *  The  evil  sought  to  be  prevented  was  the  use 
of  public  highways  in  such  a  manner  as  to  pre- 
fer, by  difference  of  rates,  one  locality  to 
another,  and  the  remedy  adopted  by  the  State 
was  to  declare  such  preferences  illegal,  and  to 
prohibit  any  person,  corporation,  or  common 
carrier  from  resorting  to  them.    That  remedy 


56 

included  in  its  scope  every  one,  without  dis- 
tinction, whose  calling,  public  in  its  character, 
gave  an  opportunity  to  do  the  mischief  which 
the  State  desired  to  prevent.  The  practical  in- 
efficiency of  this  remedy  to  reach  the  desired 
end,  and  the  resulting  injury  to  the  welfare  of 
both  the  producers  and  the  consumers  of  an 
article  like  coal,  when  brought  into  competition 
with  coal  brought  from  without  the  State,  are 
strongly  urged  in  behalf  of  the  plaintiff  in 
error;  but,  however  well  founded  such  objec- 
tions may  be,  they  go  to  the  wisdom  and  policy 
of  the  enactment,  not  to  its  validity  in  a  Federal 
point  of  view.'* 

Let  us  consider  that  the  principles  involved  did  not 
receive  that  careful  consideration  which  their  impor- 
tance demanded  (and  the  opinion  indicates  great  con- 
fusion in  the  mind  of  the  court),  and  consider  those 
])rinciples  in  the  light  of  reason  and  the  other  decisions 
of  the  courts. 

In  the  first  place,  the  clause  may  be  assumed  to  be 
within  the  general  bounds  of  the  powers  conferred  on 
Congress  by  the  commerce  clause.  It  seems  clear  that 
the  purpose  of  the  enactment  is  to  destroy  and  prevent 
discrimination,  and  that  that  is  its  only  purpose.  See 
the  Kentucky  case  in  183  U.  S.,  supra;  Texas  &  Pacific 
Ry.  Co.  vs.  Interstate  Commerce  Commission,  162 
U.  S.,  184,  197.  It  cannot  be  denied  that  such  purpose 
is  a  proper  one. 

The  validity,  then,  of  the  clause  will  depend  upon 
the  answer  to  the  question,  Is  the  enactment  reason- 
able, or  is  it  arbitrary? 

In  order  for  an  act  to  successfully  meet  this  test,  it 
must  be  adapted  to  the  accomplishment  of  the  end 
sought  (it  having  been  assumed  that  its  purpose  is 


57 

legitimate),  and  in  accomplishing  such  end,  the  re- 
sults must  not  be  so  destructive  as  to  plainly  and  de- 
cisively outweigh  the  good  it  is  calculated  to  do.  The 
more  important  the  accomplishment  of  the  purposes 
of  an  act,  and  the  better  adapted  the  act  is  to  accom- 
plish such  purposes,  the  more  incidental  damage  it 
may  do  without  thereby  overstepping  constitutional 
bounds. 

In  McCulloch  vs.  Maryland,  4  Wheat.,  316,  421,  423, 
Chief  Justice  Marshall  declared : 

*^The  sound  construction  of  the  Constitution 
must  allow  to  the  national  legislature  that  dis- 
cretion, with  respect  to  the  means  by  which  the 
powers  it  confers  are  to  be  carried  into  execu- 
tion, which  will  enable  that  body  to  perform  the 
high  duties  assigned  to  it,  in  the  manner  most 
beneficial  to  the  people.  Let  the  end  be  legiti- 
mate, let  it  be  within  the  scope  of  the  Constitu- 
tion,  and  all  means  which  are  appropriate, 
which  are  plainly  adapted  to  that  end,  which  are 
not  prohibited,  but  consist  with  the  letter  and 
spiri  of  the  Constitution,  are  constitutional."" 

Again : 

*^  Where  the  law  is  not  prohibited,  and  is 
really  calculated  to  effect  any  of  the  objects  en- 
trusted to  the  Government,  to  undertake  here 
to  inquire  into  the  degree  of  its  necessity,  would 
be  to  pass  the  line  which  circumscribes  the  judi- 
cial department,  and  to  tread  on  legislative 
ground. ' ' 

Interstate  Commerce  Commission  vs.  Brimson,  154 
U.  S.,  447,  illustrates  the  principle  that  legislative  en- 
actments to  be  sustained    must  be    designed  to    ac- 


58 

complish  the  proper  ends  of  government  and  must  in 
fact  be  adapted  to  the  accomplishment  of  such  ends. 
In  that  case  the  court  declared  that  the  prohibition  of 
discriminations  in  the  matter  of  interstate  rates  was  a 
proper  exercise  of  the  power  of  Congress  under  the 
commerce  clause,  and  that  the  provisions  of  section 
12  of  the  act,  empowering  the  Commission  to  inquire 
into  the  management  of  the  business  of  carriers  sub- 
ject to  the  act,  and  to  subpoena  witnesses  to  testify 
concerning  the  subjects  involved  in  the  act,  were 
''plainly  adapted  to  the  objects  intended  to  be  ac- 
complished. ' ' 

'' Interpreting  the  Interstate  Commerce  Act  as  ap 
plicable,"  said  the  court,  **and  as  intended  to  apply, 
only  to  matters  involved  in  the  regulation  of  com- 
merce, and  which  Congress  may  rightfully  subject  to 
investigation  by  a  commission  established  for  the  pur- 
pose of  enforcing  that  act,  we  are  unable  to  say  that 
its  provisions  are  not  appropriate  and  plainly  adapted 
to  the  protection  of  interstate  commerce  from  burdens 
that  are  or  may  be,  directly  or  indirectly,  imposed 
upon  it  by  means  of  unjust  and  unreasonable  discrimi- 
nations, charges,  and  preferences.  Congress  is  not  lim- 
ited in  its  employment  of  means  to  those  that  are  abso- 
lutely essential  to  the  accomplishment  of  objects  within 
the  scope  of  the  powers  granted  to  it.  It  is  a  settled 
principle  of  constitutional  law  that  'the  government 
which  has  a  right  to  do  an  act,  and  has  imposed  on  it  the 
duty  of  performing  that  act,  must,  according  to  the 
dictates  of  reason,  be  allowed  to  select  the  means ;  and 
those  who  contend  that  it  may  not  select  any  appro- 
priate means,  that  one  particular  mode  of  effecting 
the  object  is  excepted,  take  upon  themselves  the  bur- 
den of  establishing  that  exception.'  4  Wheat.,  316, 
409.'' 

Where  the  enactment,  although  its  purpose  may  be 


59 

to  promote  the  interests  of  the  public,  is  so  destructive 
of  individual  rights  as  plainly  to  outweigh  the  sup- 
posed advantages  accruing  from  its  operation,  the 
courts  will  strike  it  down.  A  good  illustration  of 
this  is  found  in  the  cases  on  rate  regulation. 
Whatever  may  be  the  true  theory  with  respect 
to  Government  control  over  railroad  rates,  the 
theory  that  is  now  and  has  for  a  long  time  been 
applied  by  the  courts  is  that  where  an  enactment 
fixing  rates  reaches  the  point  where  the  carrier  is  not 
allowed  an  adequate  return  upon  the  value  of  its  prop- 
erty, such  enactment  is  considered  not  to  be  a  regula- 
tion adapted  to  the  accomplishment  of  a  proper  public 
purpose,  and  is  regarded  as  confiscatory.  This  is 
practically  the  application  of  the  principle  of  reason- 
ableness. 

In  Eailroad  Commission  Cases,  116  U.  S.,  307,  Chief 
Justice  Waite  said  that — 

*' under  pretense  of  regulating  fares  on  trains 
the  State  cannot  require  a  railroad  corporation 
to  carry  persons  or  property  without  reward, 
neither  can  it  do  that  which  in  law  amounts  to 
the  taking  of  private  property  for  public  use 
without  just  compensation  or  without  due  pro- 
cess of  law.'' 

In  the  Eeagan  case  (154  U.  S.,  362,  399)  it  was  de- 
clared that 

'  *  it  is  within  the  scope  of  judicial  power  and  a 
part  of  judicial  duty  to  restrain  anything  which, 
in  the  form  of  a  regulation  of  rates,  operates  to 
deny  to  the  owners  of  property  invested  in  the 
business  of  transportation  that  equal  protection 
which  is  the  constitutional  right  of  i\\]  owners 
of  other  property.'' 


60 

In  Smyth  vs,  Ames,  169  U.  S.,  these  cases  are  re- 
ferred to  by  the  court,  and  it  again  declares  that  the 
Federal  Constitution  forbids  legislation,  ^^in  whatever 
form  it  may  be  enacted, ''  by  which  a  person's  property 
is  taken  from  him  without  compensation,  and  that  ^  *  the 
forms  of  law  and  the  machinery  of  government,  with 
all  their  reach  and  power,  must,  in  their  actual  work- 
ings, stop  on  the  hither  side  of  unnecessary  and  un- 
compensated taking  or  destruction  of  any  private 
property  legally  acquired  and  legally  held.'' 

Thus,  if  a  rate-fixing  statute  goes  beyond  the  limit 
of  regulation,  it  ceases  to  be  adapted  to  proper  govern- 
mental purposes,  and  is  condemned  as  an  arbitrary 
interference  by  the  Government  with  property  rights. 

In  Lochner  vs.  New  York,  198  U.  S.,  45,  the  Supreme 
Court  struck  down  a  statute  of  New  York  providing 
that  employees  in  bakeries  should  not  be  required  or 
permitted  to  work  more  than  10  hours  a  day,  the  court 
saying  (pp.  56-57) : 

**It  must,  of  course,  be  conceded  that  there 
is  a  limit  to  the  valid  exercise  of  the  police 
power  by  the  State.  There  is  no  dispute  con- 
cerning this  general  proposition.  Otherwise 
the  Fourteenth  Amendment  would  have  no  effi- 
cacy and  the  legislatures  of  the  States  would 
have  unbounded  power,  and  it  would  be  enough 
to  say  that  any  piece  of  legislation  was  enacted 
to  conserve  the  morals,  the  health  or  the  safety 
of  the  people;  such  legislation  would  be  valid, 
no  matter  how  absolutely  without  foundation 
the  claim  might  be.  The  claim  of  the  police 
power  would  be  a  mere  pretext — become 
another  and  delusive  name  for  the  supreme 
sovereignty  of  the  State  to  be  exercised  free 
from  constitutional  restraint.  This  is  not  con- 
tended for.     In  every  case  that  comes  before 


61 

this  court,  therefore,  where  legislation  of  this 
character  is  concerned  and  where  the  protection 
of  the  Federal  Constitution  is  sought,  the  ques- 
tion necessarily  arises:  Is  this  a  fair,  reason- 
able  and  appropriate  exercise  of  the  police 
power  of  the  State,  or  is  it  an  unreasonable,  un- 
necessary and  arbitrary  interference  with  the 
right  of  the  individual  to  his  personal  liberty 
or  to  enter  into  those  contracts  in  relation  to 
labor  which  may  seem  to  him  appropriate  or 
necessary  for  the  support  of  himself  and  his 
family?  Of  course  the  liberty  of  contract  re- 
lating to  labor  includes  both  parties  to  it.  The 
one  has  as  much  right  to  purchase  as  the  other 
to  sell  labor. 

**This  is  not  a  question  of  substituting  the 
judgment  of  the  court  for  that  of  the  legislature. 
If  the  act  be  within  the  power  of  the  State  it  is 
valid,  although  the  judgment  of  the  court  might 
be  totally  opposed  to  the  enactment  of  such  a 
law.  But  the  question  would  still  remam:  Is 
it  within  the  police  power  of  the  State?  An^l 
that  question  must  be  answered  by  the  court.'' 

Again  (pp.  57-8) : 

**It  is  a  question  of  which  of  two  powers  or 
rights  shall  prevail — the  power  of  the  State  to 
legislate  or  the  right  of  the  individual  to  iibertv 
of  person  and  freedom  of  contract.  The  mere 
assertion  that  the  subject  relates  though  but  in 
a  remote  degree  to  the  public  health  does  not 
necessarily  render  the  enactment  valid.  The 
act  must  have  a  more  direct  relation,  as  a  means 
to  an  end,  and  the  end  itself  must  be  appro- 
priate and  legitimate,  before  an  act  can  be  held 
to  be  valid  which  interferes  with  the  general 


62 

right  of  an  individual  to  be  free  in  his  person 
and  in  his  power  to  contract  in  relation  to  his 
own  labor.'' 

Again  (p.  61)  :• 

*  *  Statutes  of  the  nature  of  that  under  review, 
limiting  the  hours  in  which  grown  and  intelli- 
gent men  may  labor  to  earn  their  living,  are 
mere  meddlesome  interferences  with  the  rights 
of  the  individual,  and  they  are  not  saved  from 
condemnation  by  the  claim  that  they  are  passed 
in  the  exercise  of  the  police  power  and  upon  the 
subject  of  the  health  of  the  individual  whose 
rights  are  interfered  with,  unless,  there  be 
some  fair  ground,  reasonable  in  and  of  itself, 
to  say  that  there  is  material  danger  to  the  pub- 
lic health  or  to  the  health  of  the  employees,  if 
the  hours  of  labor  are  not  curtailed." 

In  Atlantic  Coast  Line  E.  Co.  vs.  North  Carolina 
Corporation  Commission  (Selma  Connection  Case), 
206  U.  S.,  1,  the  Supreme  Court  (per  Justice  White) 
said  (p.  20) : 

**As  the  public  power  to  regulate  railways 
and  the  private  right  of  ownership  of  such  prop- 
erty coexist  and  do  not  the  one  destroy  the 
other,  it  has  been  settled  that  the  right  of  own- 
ership of  railway  property,  like  other  property 
rights,  finds  protection  in  constitutional  guar- 
anties, and,  therefore,  wherever  the  power  of 
regulation  is  exerted  in  such  an  arbitrary  and 
unreasonable  way  as  to  cause  it  to  be  in  effect 
not  a  regulation,  but  an  infringement  upon  the 
right  of  ownership,  such  an  exertion  of  power 
is  void  because  repugnant  to  the  due  process 


63 

and  equal  protection  clauses  of  the  14th  Amend 
ment. ' ' 

The  court  upheld  the  statute,  although  it  was  shown 
that  the  operation  of  the  train  would  not  be  profitable, 
saying  (p.  27) : 

''Of  course  the  fact  that  the  furnishing  of  a 
necessary  facility  ordered  may  occasion  an  in- 
cidental pecuniary  loss  is  an  important  criteria 
(sic)  to  be  taken  into  view  in  determining  the 
reasonableness  of  the  order,  but  it  is  not  the 
only  one.'' 

See  Missouri  Pacific  E.  Co.  vs.  Kansas,  216  U.  S., 
262;  Interstate  Commerce  Commission  vs.  Northern 
Pacific  E.  Co.,  216  U.  S.,  538. 

In  C,  B.  &  Q.  E.  Co.  vs.  Drainage  Commissioners, 
200  XJ.  S.,  561,  where  an  act  of  Illinois  under  which  the 
railroad  was  required  to  rebuild  its  bridge  over  a 
creek,  made  necessary  by  its  enlargement  by  the  Drain- 
age Commission,  was  upheld  by  the  Supreme  Court, 
the  court  thus  laid  down  the  principle  governing  the 
case  (p.  592) : 

''The  validity  of  a  police  regulation,  whether 
established  directly  by  the  State  or  by  some 
public  body  acting  under  its  sanction,  must  de- 
pend upon  the  circumstances  of  each  case  and 
the  character  of  the  regulation,  whether  arbi- 
trary or  reasonable  and  whether  really  designed 
to  accomplish  a  legitimate  public  purpose." 

It  clearly  appears  from  the  foregoing  cases  that  if  a 
rigid  long  and  short  haul  clause  is  arbitrary  and  un- 
reasonable because  not  adapted  to  effect  a  legitimate 
public    purpose,    or    because    so    burdensome    upon 


64 

the  carrier  as  decisively  to  outweigh  any  advantage 
that  may  accrue  to  the  public  from  it,  it  must  be  con- 
demned. Let  us,  then,  inquire  whether  the  clause  is 
adapted  to  the  accomplishment  of  legitimate  public  ob- 
jects, or  whether  it  cannot  be  considered  as  so  adapted 
because  arbitrarily  interfering  with  the  property 
rights  of  the  carrier. 

The  construction  originally  put  upon  the  long  and 
short  haul  clause  by  the  Commission  denied  the  efficacy 
of  competition  at  the  longer  distance  point  with  other 
carriers  subject  to  the  Act  as  producing  a  dissimilarity 
of  circumstances  authorizing  a  lower  rate  to  the  longer 
distance  point.  This  construction  of  the  Act  was  de- 
molished by  the  Supreme  Court.  Cincinnati,  N.  0.  & 
T.  P.  E.  Co.  vs.  Interstate  Commerce  Commission,  162 
U.  S.,  184;  Texas  &  Pacific  Eailway  Co.  vs.  Interstate 
Commerce  Commission,  162  U.  S.,  197;  Interstate 
Commerce  Commission  vs.  Alabama  Midland  E.  Co., 
168  U.  S.,  144;  Louisville  &  Nashville  E.  Co.  vs.  Behl- 
mer,  175  U.  S.,  648. 

In  overruling  the  position  taken  by  the  Commission, 
the  Supreme  Court  in  effect  declared  that  it  was  unable 
to  adopt  a  construction  of  the  Act  that  would  interfere 
with  and  destroy  commerce  and  unnecessarily  inter- 
fere with  the  business  of  the  carriers. 

Texas  &  Pacific  E.  Co.  vs.  Interstate  Commerce  Com- 
mission, supra,  involved  the  validity  of  an  order  of  the 
Interstate  Commerce  Commission  requiring  the  de- 
fendant company  to  desist  from  carrying  import  traf- 
fic from  port  to  destination  at  a  less  rate  than  it  car- 
ried inland  traffic  between  such  points.  While  the  case 
involved  the  construction  of  section  3,  the  principles 
laid  down  are  equally  applicable  to  section  4.  Indeed, 
the  purposes  of  the  entire  Act  were  reviewed  by  the 
court.  At  page  211,  the  court  (by  Justice  Shiras) 
said: 


65 

' '  So,  too,  it  could  not  be  readily  supposed  that 
Congress  intended,  when  regulating  such  com- 
merce, to  interfere  with  and  interrupt,  much  less 
destroy,  sources  of  trade  and  commerce  already 
existing,  nor  to  overlook  the  property  rights  of 
those  who  had  money  invested  in  the  railroads 
of  the  country,  nor  to  disregard  the  interests  of 
the  consumers,  to  furnish  whom  with  merchan- 
dise is  one  of  the  principal  objects  of  all  systems 
of  transportation.'^ 

Again,  on  page  218: 

*^We  think  that  Congress  has  here  pointed 
out  that,  in  considering  questions  of  this  sort, 
the  Commission  is  not  only  to  consider  the 
wishes  and  interests  of  the  shippers  and  mer- 
chants of  large  cities,  but  to  consider  also  the 
desire  and  advantage  of  the  carriers  in  securing 
special  forms  of  traffic,  and  the  interest  of  the 
public  that  the  carriers  should  secure  that  traffic, 
rather  than  abandon  it,  or  not  attempt  to  secure 
it.  It  is  self-evident  that  many  cases  may  and 
do  arise  where,  although  the  object  of  the  car- 
riers is  to  secure  the  traffic  for  their  own  pur- 
poses and  upon  their  own  lines,  yet,  neverthe- 
less, the  very  fact  that  they  seek,  by  the  charges 
they  make,  to  secure  it,  operates  in  the  interests 
of  the  public. '' 

Again  (p.  219) : 

^'Commerce,  in  its  largest  sense,  must  be 
deemed  to  be  one  of  the  most  important  subjects 
of  legislation,  and  an  intention  to  promote  and 
facilitate  it,  and  not  to  hamper  or  destroy  it,  is 
naturally  to  be  attributed  to  Congress.  The 
5— E 


66 

very  terms  of  the  statute,  that  charges  must  be 
reasonable^  that  discrimination  must  not  be  un- 
just, and  that  preference  or  advantage  to  any 
particular  person,  firm,  corporation,  or  locality 
must  not  be  undue  or  unreasonable,  necessarily 
imply  that  strict  uniformity  is  not  to  be  en- 
forced; but  that  all  circumstances  and  condi- 
tions which  reasonable  men  would  regard  as 
affecting  the  welfare  of  the  carrying  companies, 
and  of  the  producers,  shippers,  and  consumers, 
should  be  considered  by  a  tribunal  appointed 
to  carry  into  effect  and  enforce  the  provisions 
of  the  act." 

On  page  222  the  court  declared  that  the  order  of  the 
Commission  created  the  very  discrimination  which  it 
was  the  object  of  the  act  to  destroy : 

**The  effort  of  the  Commission,  by  a  rigid 
general  order,  to  deprive  the  inland  consumers 
of  the  advantage  of  through  rates,  and  to  thus 
give  an  advantage  to  the  traders  and  manufac- 
turers of  the  large  seaboard  cities,  seems  to  cre- 
ate the  very  mischief  which  it  was  one  of  the  ob- 
jects of  the  act  to  remedy.'* 

The  court  reviewed  the  English  cases  arising  out  of 
the  English  act  from  which  section  3  of  the  Act  to 
Regulate  Commerce  was  taken.  It  called  attention  to 
the  decision  in  Phipps  vs.  London  &  Northwestern 
Railway,  2  Q.  B.  D.,  1892,  229,  where  a  violation  of  the 
long  and  short  haul  principle,  caused  by  controlling 
competition  at  the  longer  distance  point,  was  claimed 
to  constitute  an  undue  discrimination.  The  following 
language  of  Lord  Herschell  is  quoted : 


67 

*  *  Of  course,  if  the  circumstances  so  differ  that 
the  difference  of  charge  is  in  exact  conformity 
with  the  difference  of  circumstances,  there 
would  be  no  preference  at  all.  * ' 

The  court  approves  the  language  of  Lord  Selborne, 
in  Denaby  Main  Colliery  Company  vs.  Manchester, 
etc.,  Railway  Co.,  3  Railway  and  Canal  Traffic  Cases, 
426,  where  he  said : 

^*It  is  said  that  it  is  unfair  to  the  trader  who 
is  nearer  the  market  that  he  should  enjoy  the 
full  benefit  of  the  advantage  to  be  derived  from 
his  geographical  situation  at  a  point  on  the  rail- 
way nearer  the  market  than  his  fellow-trader 
who  trades  at  a  point  more  distant ;  but  I  cannot 
see,  looking  at  the  matter  as  between  the  two 
traders,  why  the  advantageous  position  of  the 
one  trader  in  having  his  works  so  placed  that 
he  has  two  competitive  routes  is  not  as  much  a 
circumstance  to  be  taken  into  consideration  as 
the  geographical  position  of  the  other  trader, 
who,  though  he  has  not  the  advantage  of  compe- 
tition, is  situated  at  a  point  on  the  line  geo- 
graphically nearer  the  market.  Why  the  local 
situation  in  regard  to  its  proximity  to  the  mar- 
ket is  to  be  the  only  consideration  to  be  taken 
into  account  in  dealing  with  the  matter  as  a 
matter  of  what  is  reasonable  and  right  as  be- 
tween the  two  traders,  I  cannot  understand. 
*  *  *  One  class  of  cases,  unquestionably  in- 
tended to  be  covered  by  the  section,  is  that  in 
which  traffic  from  a  distance,  of  a  character  that 
competes  with  traffic  nearer  the  market,  is 
charged  low  rates,  because  unless  such  low  rates 
were  charged,  it  would  not  come  into  the  market 


68 

at  all.  It  is  certain,  unless  some  such  principle 
as  that  were  adopted,  a  large  town  would  neces- 
sarily have  its  food  supply  greatly  raised  in 
price.  So  that,  although  the  object  of  the  com- 
pany is  simply  to  get  the  traffic,  the  public  have 
an  interest  in  their  getting  the  traffic  and  allow- 
ing the  carriage  at  a  rate  which  will  render  that 
traffic  possible,  and  so  bring  the  goods  at  a 
cheaper  rate,  and  one  which  makes  it  possible 
for  those  at  a  greater  distance  to  compete  with 
those  situate  nearer  to  it.     *     *     * 

**  Suppose  that  to  insist  on  absolutely  equal 
rates  would  practically  exclude  one  of  the  two 
railways  from  the  traffic,  it  is  obvious  that  these 
members  of  the  public  who  are  in  the  neighbor- 
hood where  they  can  have  the  benefit  of  this 
competition,  would  be  prejudiced  by  any  such 
proceedings.  And,  further,  inasmuch  as  com- 
petition undoubtedly  tends  to  diminution  of 
charges,  and  the  charge  of  carriage  is  one  which 
ultimately  falls  upon  the  consumer,  it  is  obvious 
that  the  public  have  an  interest  in  the  proceed- 
ings under  this  act  of  Parliament  not  being  so 
used  as  to  destroy  a  traffic  which  can  never  be 
secured  but  by  some  such  reduction  of  charge, 
and  the  destruction  of  which  would  be  preju- 
dicial to  the  public  by  tending  to  increase 
prices.'' 

In  this  case  the  court  goes  on  record  to  the  effect 
that  an  enactment  causing  a  rigid  equality  of  rates, 
though  the  circumstances  are  dissimilar,  is  not  adapted 
to  preventing  or  destroying  undue  discrimination,  and 
is  not  in  the  interests  of  the  public.  It  also  clearly 
recognizes  the  fact  that  such  an  enactment  would  be 


69 

destructive  of  commerce  and  of  the  interests  of  the 
carriers  engaged  in  such  commerce. 

In  East  Tennessee,  etc.,  R.  Co.  vs.  Interstate  Com- 
merce Commission,  181  U.  S.,  1,  where  Justice  White 
delivered  the  opinion,  the  question  was  whether  the 
defendant  violated  the  long  and  short  haul  clause  by 
carrying  traffic  from  eastern  points  to  Nashville 
through  Chattanooga  at  a  rate  less  than  the  rate  to 
Chattanooga,  the  lower  rate  for  the  longer  distance 
being  induced  by  competition  with  other  carriers 
at  Nashville.  The  court  reaffirmed  its  previous 
ruling  on  the  question,  and  declared,  in  effect,  that  a 
contrary  decision  would  not  relieve  the  discrimination 
as  against  Chattanooga,  and  that  in  fact  there  could 
not  be  said  to  be  discrimination  by  the  carrier,  since 
the  conditions  causing  lower  rates  to  Nashville  were 
beyond  its  control.    On  page  18  the  court  said : 

**In  a  supposed  case  when,  in  the  first  in- 
stance, upon  an  issue  as  to  a  violation  of  the 
fourth  section  of  the  act,  it  is  conceded  or  estab- 
lished that  the  rates  charged  to  the  shorter  dis- 
tance point  are  just  and  reasonable  in  and  of 
themselves,  and  it  is  also  shown  that  the  lesser 
rate  charged  for  the  longer  haul  is  not  wholly 
unremunerative  and  has  been  forced  upon  the 
carriers  by  competition  at  the  longer  distance 
point,  it  must  result  that  a  discrimination 
springing  alone  from  a  disparity  in  rates  can- 
not be  held,  in  legal  effect,  to  be  the  voluntary 
act  of  the  defendant  carriers,  and  as  a  conse- 
quence the  provisions  of  the  third  section  of  the 
act  forbidding  the  making  or  giving  of  an  undue 
or  unreasonable  preference  or  advantage  will 
not  apply.  The  prohibition  of  the  third  section, 
when  that  section  is  considered  in  its  proper  re- 


70 

lation,  is  directed  against  unjust  discrimination 
or  undue  preference  arising  from  the  voluntary 
and  wrongful  act  of  the  carriers  complained  of 
as  having  given  undue  preference,  and  does  not 
relate  to  acts  the  result  of  conditions  wholly 
beyond  the  control  of  such  carriers.  And  special 
attention  was  directed  to  this  view  in  the 
Behlmer  case,  in  the  passage  which  we  have 
previously  excerpted.  To  otherwise  construe 
the  statute  would  involve  a  departure  from  its 
plain  language,  and  would  be  to  confound  cause 
with  effect.  For,  if  the  preference  occasioned 
in  favor  of  a  particular  place  by  competition 
there  gives  rise  to  the  right  to  charge  the  lesser 
rate  to  that  point,  it  cannot  be  that  the  availing 
of  this  right  is  the  cause  of  the  preference,  and 
especially  is  this  made  clear  in  the  case  sup- 
posed, since  it  is  manifest  that  forbidding  the 
carrier  to  meet  the  competition  would  not  re- 
move the  discrimination.' ' 


The  court  also  pointed  out  that  unless  the  carrier 
were  permitted  to  make  a  lower  rate  to  Nashville  it 
would  be  deprived  of    the    Nashville   business.     On 
pages  18-19  the  court  said : 

*  *  The  only  principle  by  which  it  is  possible  to 
enforce  the  whole  statute  is  the  construction 
adopted  by  the  previous  opinions  of  this  court ; 
that  is,  that  competition  which  is  real  and  sub- 
stantial, and  exercises  a  potential  influence  on 
rates  to  a  particular  point,  brings  into  play  the 
dissimilarity  of  circumstance  and  condition 
provided  by  the  statute,  and  justifies  the  lesser 
charge  to  the  more  distant  and  competitive 
point  than  to  the  nearer  and  non-competitive 


71 

place,  and  that  this  right  is  not  destroyed  by 
the  mere  fact  that  incidentally  the  lesser  charge 
to  the  competitive  point  may  seemingly  give  a 
preference  to  that  point,  and  the  greater  rate  to 
the  non-competitive  point  may  apparently  en- 
gender a  discrimination  against  it.  We  say 
seemingly  on  the  one  hand  and  apparently  on 
the  other,  because  in  the  supposed  cases  the 
preference  is  not  *  undue'  or  the  discrimination 
*  unjust/  This  is  clearly  so,  when  it  is  consid- 
ered that  the  lesser  charge  upon  which  both  the 
assumption  of  preference  and  discrimination  is 
predicated  is  sanctioned  by  the  statute,  which 
causes  the  competition  to  give  rise  to  the  right 
to  make  such  lesser  charge.  Indeed,  the  find- 
ings of  fact  made  by  the  Commission  in  this  case 
leave  no  room  for  the  contention  that  either  un- 
due preference  in  favor  of  Nashville  or  unjust 
discrimination  against  Chattanooga  arose 
merely  from  the  act  of  the  carriers  in  meeting 
the  competition  existing  at  Nashville.  The 
Commission  found  that  if  the  defendant  carriers 
had  not  adjusted  their  rates  to  meet  the  com- 
petitive condition  at  Nashville,  the  only  conse- 
quence would  have  been  to  deflect  the  traffic  at 
the  reduced  rates  over  other  lines.  From  this 
it  follows  that,  even  though  the  defendant  car- 
riers had  not  taken  the  dissimilarity  of  circum- 
stance and  condition  into  view,  and  had  con- 
tinued their  rates  to  Nashville  just  as  if  there 
had  been  no  dissimilarity  of  circumstance  and 
condition,  the  preference  in  favor  of  Nashville 
growing  out  of  the  conditions  there  existing 
would  have  remained  in  force  and  hence  the 
discrimination  which  thereby  arose  against 
Chattanooga  would  have  likewise  continued  to 


72 

exist.  In  other  words,  both  Nashville  and  Chat- 
tanooga would  have  been  exactly  in  the  same 
position  if  the  long  and  short  haul  clause  had 
not  been  brought  into  play. ' ' 

Again,  on  page  20,  the  court  points  out  that  to  con- 
strue the  clause  as  preventing  the  carrier  from  mak- 
ing a  lower  rate  to  Nashville  would  not  only  not  pre- 
vent but  would  create  discrimination,  and  emphasizes 
the  proposition  that  such  a  construction  of  the  statute 
would  not  benefit  the  public,  while  driving  the  carrier 
out  of  the  competitive  business.  After  limiting  its 
doctrine  as  follows: 

'^Take  a  case  where  the  carrier  cannot  meet 
the  competitive  rate  to  a  given  point  without 
transporting  the  merchandise  at  less  than  the 
cost  of  transportation,  and  therefore  without 
bringing  about  a  deficiency,  which  would  have 
to  be  met  by  increased  charges  upon  other  busi- 
ness. Clearly,  in  such  a  case,  the  engaging  in 
such  competitive  traffic  would  both  bring  about 
an  unjust  discrimination  and  a  disregard  of  the 
public  interest,  since  a  tendency  towards  un- 
reasonable rates  on  other  business  would  arise 
from  the  carriage  of  traffic  at  less  than  the  cost 
of  transportation  to  particular  places.'' 

The  court  said: 

''Applying  the  principle  to  which  we  have  ad- 
verted to  the  condition  as  above  stated,  it  is  ap- 
parent that  if  the  carrier  was  prevented  under 
the  circumstances  from  meeting  the  competitive 
rate  at  Nashville,  when  it  could  be  done  at  a 
margin  of  profit  over  the  cost  of  transportation, 
it  would  produce  the  very  discrimination  which 


73 

would  spring  from  allowing  the  carrier  to  meet 
a  competitive  rate  where  the  traffic  must  be  car- 
ried at  an  actual  loss.  To  compel  the  carriers 
to  desist  from  all  Nashville  traffic  under  the  cir- 
cumstances stated  would  simply  result  in  de- 
flecting the  traffic  to  Nashville  to  other  routes, 
and  thus  entail  upon  the  carriers  who  were  in- 
hibited from  meeting  the  competition,  although 
they  could  do  so  at  a  margin  of  profit,  the  loss 
which  would  arise  from  the  disappearance  of 
such  business,  without  anywise  benefiting  the 
public. ' ' 

Coming  down  through  the  decisions  of  the  Supreme 
Court  above  cited  on  this  question,  we  find  that  the 
court  consistently  takes  the  position  that  it  cannot  be 
supposed  that  Congress  intended  the  disastrous  conse- 
quences to  carrier  and  public  alike  of  construing  the 
act  as  it  had  been  originally  construed  by  the  Conunis- 
sion. 

From  these  decisions  it  would  appear  that  the  clause 
cannot  be  saved  by  regarding  the  matter  as  dealing 
with  a  matter  wholly  within  the  discretion  of  the  legis- 
lature, as  it  was  treated  in  C,  B.  &  Q.  E.  Co.  vs.  Ander- 
son (Neb.),  101  N.  W.,  1019,  in  a  seemingly  ill-consid- 
ered opinion.  A  contrary  conclusion  was  reached  by 
the  Circuit  Court  for  the  District  of  Oregon,  in  Ex 
Parte  Koehler,  Receiver,  23  Fed.,  529,  which  came  up 
upon  an  application  of  the  Receiver  for  instructions 
as  to  whether  his  company  should  obey  a  statute  of 
Oregon  fixing  the  charges  for  carrying  property,  and 
providing:  ^'No  greater  rate  shall  be  charged  for  car- 
rying similar  property  a  short  haul  than  a  long  haul 
in  the  same  direction.'^  That  part  of  the  opinion  deal- 
ing with  the  long  and  short  haul  question  is  as  follows 
(pp.  532-4) : 


74 

*'As  to  the  matter  of  long  and  short  hauls, 
the  question,  although  prima  facie  one  of  dis- 
crimination, directly  involves  the  right  to  a 
reasonable  compensation.  I  assume  that  the 
State  has  the  power  to  prevent  a  railway  com- 
pany from  discriminating  between  persons  and 
places  for  the  sake  of  putting  one  up  or  another 
down,  or  any  other  reason  than  the  real  exi- 
gencies of  its  business.  Such  discrimination,  it 
seems  to  me,  is  a  wanton  injustice,  and  may 
therefore  be  i)rohibited.  It  violates  the  funda- 
mental maxim,  which  in  effect  forbids  any  one 
to  so  use  his  property  as  to  injure  another,  sic 
utere  tuo  ut  alienum  non  laedas.  The  pro- 
visions of  the  act  that  I  have  condensed  in  para- 
graphs 3,  4,  and  6  aforesaid  are  intended  to  pre- 
vent this  practice.  But  where  the  discrimina- 
tion is  between  places  only,  and  is  the  result  of 
competition  with  other  lines  or  means  of  trans- 
portation, the  case,  I  think,  is  different.  For  in- 
stance, the  act  prescribes  a  reasonable  rate  for 
carrying  freight  between  Corvallis  and  Port- 
land, or  from  either  to  points  intermediate 
thereto.  But  Corvallis  is  on  the  river,  and  has 
the  advantage  of  water  transportation  for  some 
months  in  the  year.  The  carriage  of  goods  by 
water  usually  costs  less  than  by  land,  and  as 
water  craft  are  allowed  to  carry  at  a  rate  less 
than  the  maximum  fixed  for  the  railway,  they 
will  get  all  the  freight  from  this  point  unless 
the  latter  is  allowed  to  compete  with  it.  But 
if,  to  do  this,  it  must  adopt  the  water  rate  for 
all  the  points  intermediate  between  Portland 
and  Corvallis,  where  there  is  no  such  competi- 
tion, it  is,  in  effect,  required  to  carry  freight  to 
and  from  such  points  at  a  less  rate  than  that 


75 

which  the  legislature  has  declared  to  be  reason- 
able, or  else  give  up  the  business  at  Corvallis 
altogether.  And  the  same  result  would  follow 
as  to  Salem  and  other  points  on  the  east  and 
west  side  lines,  where  there  is  convenient  access 
to  water  transportation. 

**If  the  legislature  cannot  require  a  railway 
corporation,  formed  under  the  laws  of  the 
State,  to  carry  freight  for  nothing,  or  at  any 
less  rate  than  a  reasonable  one,  then  it  neces- 
sarily follows  that  this  provision  of  the  act  can- 
not be  enforced  so  far  as  to  prevent  the  railway 
from  competing  with  the  water  craft  at  Cor- 
vallis and  other  similarly  situated  points,  even 
if  in  so  doing  they  are  compelled  to  charge  less 
for  a  long  haul  than  a  short  one  in  the  same 
direction.  It  is  not  the  fault  or  contrivance  of 
the  railway  that  compels  this  discrimination, 
but  it  is  the  necessary  result  of  circumstances 
altogether  beyond  its  control.  It  is  not  done 
wantonly  for  the  purpose  of  putting  one  place 
up  or  the  other  down,  but  only  to  maintain  its 
business  against  rival  and  competing  lines  of 
transportation.  In  other  words,  the  matter,  so 
far  as  the  railway  is  concerned,  resolves  itself 
into  a  choice  of  evils.  It  must  either  compete 
with  the  boats  during  the  season  of  water  trans- 
portation, and  carry  freight  below  what  the 
legislature  has  declared  to  be  a  reasonable  rate, 
or  abandon  the  field,  and  let  its  road  go  to  rust. 
Nor  can  the  shipper  at  the  non-competing  point, 
or  over  the  short  haul  complain,  so  long  as  his 
goods  are  carried  at  a  reasonable  rate.  It  is 
not  the  fault  of  the  railway  that  the  shipper  who 
does  business  at  a  competing  point  has  the  ad- 
vantage of  him.     It  is    a    natural    advantage 


76 

which  he  must  submit  to,  unless  the  legislature 
will  undertake  •  to  equalize  the  matter  by  pro- 
hibiting the  carriage  of  goods  by  water  for  a 
less  rate  than  by  rail ;  and  when  this  is  done,  the 
inequalities  of  distance  as  well  as  place  may 
also  be  overcome  by  requiring  goods  to  pay  the 
same  rate  over  a  short  haul  as  a  long  one,  and 
then  the  shipper  at  Ashland  will  be  as  near  the 
market  as  any  one.'' 

To  the  effect  that  a  rigid  long  and  short  haul  rule 
is  unconstitutional,  see  Chicago  &  Alton  R.  Co.  vs. 
People,  69  111.,  11.  See  as  to  the  effect  of  competition 
between  railroads  at  the  longer  distance  point,  Illinois 
Central  R.  R.  Co.  vs.  People,  121  III,  304.  To  the 
effect  that  a  rigid  long  and  short  haul  clause  does  not 
violate  the  Fourteenth  Amendment,  see  McGrew  vs. 
Mo.  Pac.  Ry.  Co.  (Mo.),  132  S.  W.,  1076,  1088. 

It  seems  to  me  that  the  clause  runs  counter  to  the 
principles  laid  down  in  Adair  vs.  United  States,  208 
U.  S.,  161,  where  an  act  of  Congress  was  condemned  on 
two  grounds,  one  of  which  was  that  it  violated  the 
Fifth  Amendment.  The  act  in  question  was  section 
10  of  the  Erdman  Act,  making  it  unlawful  for  carriers 
to  discharge  employees  on  account  of  membership  in 
labor  organizations,  etc.    At  page  172,  the  court  said: 

**In  our  opinion  that  section,  in  the  particular 
mentioned,  is  an  invasion  of  the  personal  lib- 
erty, as  well  as  of  the  right  of  property,  guar- 
anteed by  that  amendment.  Such  liberty  and 
right  embraces  the  right  to  make  contracts  for 
the  purchase  of  the  labor  of  others,  and  equally 
the  right  to  make  contracts  for  the  sale  of  one 's 
own  labor ;  each  right,  however,  being  subject  to 
the    fundamental    condition    that   no    contract. 


77 

whatever  its  subject-matter,  can  be  sustained 
which  the  law,  upon  reasonable  grounds,  forbids 
as  inconsistent  with  the  public  interests  or  as 
hurtful  to  the  public  order  or  as  detrimental  to 
the  common  good/' 

Consider  also  Louisville  &  Nashville  R.  Co.  vs.  Cen- 
tral Stock  Yards  Co.,  212  U.  S.,  132,  where  the  court 
held  that  a  provision  in  the  Kentucky  constitution  re- 
quiring the  carrier  to  deliver  its  cars  to  connecting 
carriers,  and  a  Kentucky  law  requiring  the  carrier  to 
accept  cars  offered  by  competing  roads  at  arbitrary 
points  near  its  terminus  for  the  purpose  of  obtaining 
the  use  of  its  terminal  facilities,  violated  the  Fourteenth 
Amendment.  Here  the  convenience  of  the  public 
would  have  been  subserved,  but  that  consideration  was 
held  not  sufficient  to  justify  the  requirement  imposed 
upon  the  carrier.  With  respect  to  the  clause  we  are 
considering,  have  endeavored  to  show  that  it  is  not 
adapted  to  subserving  the  public  interest  in  any  aspect 
of  the  case.  See  also  Missouri  Pacific  R.  Co.  vs.  Ne- 
braska, 217  U.  S.,  196,  where  a  Nebraska  statute  com- 
pelling railroad  companies  to  put  in  switches  at  their 
own  expense  on  the  application  of  the  owners  of  any 
elevator  erected  within  a  specified  limit  was  held  to 
violate  the  Fourteenth  Amendment.  Even  under  the 
decision  in  Atlantic  Coast  Line  vs.  Riverside  Mills 
(Carmack  Amendment  Case,  decided  January  3,  1911), 
which  goes  very  far  in  depressing  the  value  of  stock  in 
constitutional  rights,  the  clause  is  not  justified.  The 
decision  in  that  case  was  controlled  by  the  importance 
attached  by  the  Supreme  Court  to  the  public  con- 
venience involved.    The  court  said : 

*^If  the  power  existed,  and  the  regulation  is 
adapted  to  the  purposes  in  view,  the  public  ad- 


78 

vantage  justifies  the  discretion  exercised  and 
upholds  the  legislation  as  within  the  limit  of  the 
grant  conferred  upon  Congress.'' 


Again : 


*  *  The  power  of  government  extends  to  the  de- 
nial of  the  liberty  of  contract  to  the  extent  of 
forbidding  or  regulating  any  contract  which  is 
reasonably  calculated  to  injuriously  affect  the 
public  interests.'' 

Again : 

**  Having  the  express  power  to  make  rules  for 
the  conduct  of  commerce  among  the  States,  the 
range  of  Congressional  discretion  as  to  the  reg- 
ulation best  adapted  to  remedy  a  practice  found 
inefficient  or  hurtful,  is  a  wide  one.'* 

Under  the  declarations  of  the  Supreme  Court,  the 
practice  of  charging  lower  rates  to  long  distance  points 
is  not  hurtful,  and  the  enactment  is  not  adapted  to  the 
prevention  and  destruction  of  discrimination,  which  is 
ostensibly  the  purpose  of  the  act. 

There  can  be  no  question  that  to  deprive  the  carrier 
of  the  use  of  its  property  is  to  deprive  it  of  the  prop- 
erty itself.  As  said  by  the  Supreme  Court  in  the  Min- 
nesota case,  supra  (134  U.  S.),  at  page  458: 

'*If  the  company  is  deprived  of  the  power  of 
charging  reasonable  rates  for  the  use  of  its 
property,  and  such  deprivation  takes  place  in 
the  absence  of  investigation  by  judicial  ma- 
chinery, it  is  deprived  of  the  lawful  use  of  its 
property,  and  thus,  in  substance  and  effect,  of 
the  property  itself,  without  due  process  of  law 


79 

and  in  violation  of  the  Constitution  of  the 
United  States;  and  in  so  far  as  it  is  thus  de- 
prived, while  other  persons  are  permitted  to  re- 
ceive reasonable  profits  upon  their  invested  cap- 
ital, the  company  is  deprived  of  the  equal  pro- 
tection of  the  laws/' 

In  Cleveland,  etc.,  E.  Co.  vs.  Backus,  154  U.  S.,  445, 
it  is  said: 

^*The  value  of  property  results  from  the  use 
to  which  it  is  put,  and  varies  with  the  profitable- 
ness of  that  use,  present  and  prospective,  actual 
and  anticipated.  There  is  no  pecuniary  value 
outside  of  that  which  results  from  such  use.*' 

In  Monongahela  Navigation  Co.  vs.  U.  S.,  148  U.  S., 
328,  the  court  says : 

**The  value  of  property,  generally  speaking, 
is  determined  by  its  productiveness — the  profits 
which  its  use  brings  to  the  owner." 

Again : 

**For  each  separate  use  of  one's  property  by 
others,  the  owner  is  entitled  to  a  reasonable 
compensation,  and  the  number  and  amount  of 
such  uses  determines  the  productiveness  and  the 
earnings  of  the  property,  and,  therefore,  largely 
its  value." 

In  the  case  of  In  re  Marshall,  102  Fed.,  323,  Circuit 
Judge  Ross  said  (324-5) : 

^*  *The  constitutional  guaranty,'  said  the 
Court  of  Appeals  of  New  York  in  i^e  Jacobs, 
98  N.  Y.,  105,  'that  no  person  shall  be  deprived 


80 

of  property  without  due  process  of  law,  may  be 
violated  without  the  physical  taking  of  property 
for  public  or  private  use.  Property  may  be 
destroyed,  or  its  value  may  be  annihilated.  It 
is  owned  and  kept  for  some  useful  purpose,  and 
it  has  no  value  unless  it  can  be  used.  Its  capa-. 
bility  for  enjoyment  and  adaptability  to  some 
use  are  essential  characteristics  and  attributes 
without  which  property  cannot  be  conceived, 
and  hence  any  law  which  destroys  it  or  its  value, 
or  takes  away  any  of  its  essential  attributes, 
deprives  the  owner  of  his  property.'  See  also, 
Pumpelly  vs.  Green  Bay  Co.,  13  Wall.,  177 ;  20 
L.  Ed.,  557;  Wynehamer  vs.  People,  13  N.  Y., 
398;  People  vs.  Otis,  90  N.  Y.,  48.'' 

There  is  an  aspect  of  the  effect  of  the  clause  upon 
the  carrier's  rights  other  than  the  mere  question  of 
deprivation  of  property  itself  (though  inseparably 
connected  with  that  aspect  of  the  matter),  and  that  is 
the  interference  with  the  right  of  the  carrier  to  manage 
its  own  affairs.  The  idea  is  well  illustrated  by  the 
language  of  Justice  Jackson,  then  circuit  judge,  in  the 
case  of  Interstate  Commerce  Commission  vs.  Balti- 
more &  Ohio  R.  Co.,  43  Fed.,  37,  which  is  adopted  by 
the  Supreme  Court  in  C,  N.  0.  &  T.  P.  R.  Co.  vs. 
Interstate  Commerce  Commission,  162  U.  S.,  184,  197 
(and  approved  in  Interstate  Commerce  Commission 
vs,  Alabama  Midland  R.  Co.,  168  U.  S.,  144,  173,  and 
other  cases,  including  the  late  case  of  Interstate  Com- 
merce Commission  vs.  Chicago,  etc.,  R.  Co.,  209  U.  S., 
108,  119) : 

^^  Subject  to  the  two  leading  prohibitions 
that  their  charges  shall  not  be  unjust  or  un- 
reasonable, and  that  they  shall  not  unjustly  dis- 


81 

criminate,  so  as  to  give  undue  preference  or  dis- 
advantage to  persons  or  traffic  similarly  circum- 
stanced, the  Act  to  Regulate  Commerce  leaves 
common  carriers  as  they  were  at  the  common 
law,  free  to  make  special  contracts  looking  to  the 
increase  of  their  business,  to  classify  their 
traffic,  to  adjust  and  apportion  their  rates  so  as 
to  meet  the  necessities  of  commerce,  and  gen- 
erally to  manage  their  important  interests  upon 
the  same  principles  which  are  regarded  as 
sound,  and  adopted  in  other  trades  and  pur- 
suits.'^ 

The  case  of  Lake  Shore,  etc.,  R.  Co.  vs.  Smith,  173 
U.  S.,  674,  forcibly  illustrates  the  principle.  In  that 
case  a  statute  of  Michigan  requiring  railroads  to  sell 
mileage  books  at  a  reduced  rate  was  condemned  by  the 
Supreme  Court  as  violating  the  Fourteenth  Amend- 
ment. The  principles  upon  which  the  case  was  decided 
will  appear  from  the  following  quotation : 

**The  legislature  having  established  such 
maximum  as  a  general  law  now  assumes  to 
interfere  with  the  management  of  the  company 
while  conducting  its  affairs  pursuant  to  and 
obeying  the  statute  regulating  rates  and 
charges,  and  notwithstanding  such  rates  it  as- 
sumes to  provide  for  a  discrimination,  an  ex- 
ception in  favor  of  those  who  may  desire  and 
are  able  to  purchase  tickets  at  what  might  be 
called  wholesale  rates — a  discrimination  which 
operates  in  favor  of  the  wholesale  buyer,  leav- 
ing the  others  subject  to  the  general  rule.  And 
it  assumes  to  regulate  the  time  in  which  the 
tickets  purchased  shall  be  valid  and  to  lengthen 
it  to  double  the  period  the  railroad  company  has 
6-E 


82 

ever  before  provided.  It  thus  invades  the  gen- 
eral right  of  a  company  to  conduct  and  manage 
its  own  affairs,  and  compels  it  to  give  the  use 
of  its  property  for  less  than  the  general  rate  to 
those  who  come  within  the  provisions  of  the 
statute,  and  to  that  extent  it  would  seem  that 
the  statute  takes  the  property  of  the  company 
without  due  process  of  law/' 

Again,  p.  692: 

^^The  right  to  claim  from  the  company  trans- 
portation at  reduced  rates  by  purchasing  a  cer- 
tain amount  of  tickets  is  classed  as  a  conven- 
ience. As  so  defined  it  would  be  more  con- 
venient if  the  right  could  be  claimed  without 
any  compensation  whatever.  But  such  a  right 
is  not  a  convenience  at  all  within  the  meaning 
of  the  term  as  used  in  relation  to  the  subject 
of  furnishing  conveniences  to  the  public.  And 
also  the  convenience  which  the  legislature  is 
to  protect  is  not  the  convenience  of  a  small  por- 
tion only  of  the  persons  who  may  travel  on 
the  road,  while  refusing  such  alleged  conven- 
ience to  all  others,  nor  is  the  right  to  obtain 
tickets  for  less  than  the  general  and  otherwise 
lawful  rate  to  be  properly  described  as  a  con- 
venience. If  that  were  true,  the  granting  of  the 
right  to  some  portion  of  the  public  to  ride  free 
on  all  trains  and  at  all  times  might  be  so  de- 
scribed. What  is  covered  by  the  word  *  con- 
venience' it  might  be  difficult  to  define  for  all 
cases,  but  we  think  it  does  not  cover  this  case. 
An  opportunity  to  purchase  a  thousand-mile 
ticket  for  less  than  the  standard  rate  we  think 
is  improperly  described  as  a  convenience." 


83 
Again  (pp.  694-695) : 

**If  the  legislature  can  interfere  by  directing 
the  sale  of  tickets  at  less  than  the  generally  es- 
tablished rate,  it  can  compel  the  company  to 
carry  certain  persons  or  classes  free.  If  the 
maximum  rates  are  too  high  in  the  judgment  of 
the  legislature,  it  may  lower  them,  provided 
they  do  not  make  them  unreasonably  low  as  that 
term  is  understood  in  the  law;  but  it  cannot 
enact  a  law  making  maximum  rates,  and  then 
proceed  to  make  exceptions  to  it  in  favor  of  such 
persons  or  classes  as  in  the  legislative  judgment 
or  caprice  may  seem  proper.  What  right  has 
the  legislature  to  take  from  the  company  the 
compensation  it  would  otherwise  receive  for  the 
use  of  its  property  in  transporting  an  individual 
or  classes  of  persons  over  its  road,  and  compel 
them  to  transport  them  free  or  for  a  less  sum 
than  is  provided  for  by  the  general  law?  Does 
not  such  an  act,  if  enforced,  take  the  property 
of  the  company  without  due  process  of  law? 
We  are  convinced  that  the  legislature  cannot 
thus  interfere  with  the  conduct  of  the  affairs  of 
corporations.*' 

This  case  is  followed  in  a  dissenting  opinion  by  three 
judges  of  the  Kentucky  Court  of  Appeals,  in  Louis- 
ville &  Nashville  R.  Co.  vs.  Commonwealth,  51  S.  W., 
supra,  at  page  1012,  which  is  directly  in  point  in  con- 
nection with  the  question  here  to  be  determined.  The 
court  said  (pp.  1012-1013) : 

^*  Under  the  law  as  construed  by  the  majority 
opinion,  the  company  must  (1)  increase  its  rates 
from  the  Kentucky  mines  to  Louisville  beyond 
the  rates  fixed  to  Lebanon,  or  (2)  decrease  the 


84 

rates  from  the  mines  to  Lebanon  below  those 
charged  to  Louisville,  or  (3)  depend  upon  the 
arbitrary  will  of  the  railroad  commissioners  to 
adjust  the  rates  as  to  them  may  seem  proper. 
If  the  first  alternative  is  forced  on  the  company, 
the  result  is  a  prohibition  of  the  carriage  of  coal 
from  the  mines  to  Louisville,  as  none  could  be 
sold  there.     This  result  would  be  confessedly 
an  unwarrantable  interference  with  the  reason- 
able use  of  the  company's  property.     If  the  sec- 
ond, then  the  company  is  forced  to  furnish  the 
use  of  its  property  at  a  price  below  that  which 
is  reasonable,  and  at  rates  below  those  which 
afford  a  fair  and  just  return  on  the  capital  in- 
vested.    This  is  true,  because  it  is  to  be  assumed 
that  the  rates  from  the  mines  to  Lebanon  are 
already  reasonable  and  just.     The  proof  offered 
is  conclusive  on  this  point.     The  only  remaining 
refuge  of  the  company  is  to  submit  its  manage- 
ment to  the  arbitrary  will  of  the  commissioners. 
And  this,  say  the  court  in  effect,  is  better  than 
to  leave  the  matter  at  issue  to  a  jury.     I  think 
the  court  overlooks  the  fact  that  a  jury  must  act 
within  the  rules  of  law.     A  trial  before  a  jury 
is  had  under  the  ordinary  forms  of  law.     The 
judge  and  jury  are  at  least  controlled  and  bound 
by  legal  principles  and  precedents.     I  think,  in 
the  first  place,  neither  Congress  nor  the  consti- 
tutional convention  ever  intended  to  vest  their 
respective  boards  of  commissioners  with  such 
extraordinary  powers ;  and,  in  the  second  place, 
I  think  the  law  so  construed  would  result  in  an 
unwarrantable  interference  with  the  reasonable 
use  of  the  appellants '  property,  and  to  an  extent 
not  permissible  under  either  State  or  Federal 
Constitution. ' ' 


In  Piatt  vs,  Le  Cocq,  150  Fed.,  391,  the  Circuit  Court 
for  the  District  of  South  Dakota  was  called  upon  to 
construe  a  statute  of  South  Dakota  making  it  unlawful 
for  any  common  carrier  to  give  any  preference  to  any 
person,  locality,  etc.,  or  subject  any  kind  of  traffic  to 
any  disadvantage.  The  court  interpreted  the  statute 
to  refer  to  undue  advantage  and  undue  prejudice,  say- 
ing (p.  397) : 

^*The  legislature  could  not  have  intended  a 
literal  enforcement  of  the  statute,  because  that 
would  leave  the  express  company  no  discretion 
in  the  conduct  of  this  business  whatever,  and,  if 
the  law  could  be  construed  as  prohibiting  any 
prejudice  or  disadvantage,  the  validity  of  the 
law  would  be  in  danger. ' ' 

In  Interstate  Commerce  Commission  vs.  Chicago, 
etc.,  R.  Co.,  209  U.  S.,  108,  where  it  was  necessary  for 
the  court  to  determine  whether  the  Interstate  Com- 
merce Act  permitted  the  carrier  to  make  a  lower  rate 
for  manufactured  packing-house  products  than  for  live 
stock,  the  court  said,  Justice  Brewer  delivering  the 
opinion  (118-119) : 

'^It  must  be  remembered  that  railroads  are 
the  private  property  of  their  owners ;  that  while 
from  the  public  character  of  the  work  in  which 
they  are  engaged  the  public  has  the  power  to 
prescribe  rules  for  securing  faithful  and  efficient 
service  and  equality  between  shippers  and  com- 
munities, yet  in  no  proper  sense  is  the  public  a 
general  manager.'' 

In  Chicago,  etc.,  R.  Co.  vs.  Chicago  (C.  C.  N.  D. 
111.),  142  Fed.,  844,  a  city  ordinance  requiring  a  street 
railroad  to  accept  transfers  issued  by  other  companies 


86 

was   condemned  under   the  Fourteenth  Amendment, 
Judge  Grosscup  saying : 

**The  enjoyment  of  property  meant  by  the 
14th  Amendment  is  that  full  exercise  of  domin- 
ion over  one's  own  property — over  that  which 
one  has  himself  created— that  the  whole  law  of 
property,  from  ancient  times  down  to  the  pres- 
ent time,  gives  to  a  man,  subject  only  to  the  par- 
amount rights  of  the  State.  *  *  *  Domin- 
ion is  enjoyment,  and  dominion  is  a  part  of  the 
property  right  that  the  14th  Amendment  was  in- 
tended to  protect.'* 

In  Lawton  vs,  Steele,  152  U.  S.,  133,  the  court  said: 

**The  legislature  may  not,  under  the  guise  of 
protecting  the  public  interests,  arbitrarily  inter- 
fere with  private  business,  or  impose  unusual 
or  unnecessary  restrictions  upon  lawful  occupa- 
tions." 

See  Allgeyer  vs,  Louisiana,  165  U.  S.,  578,  589 ;  Story 
on  the  Constitution,  section  1950 ;  2  Tiedeman,  Control 
of  Persons  and  Property,  p.  939. 

In  Bonnett  vs,  Vallier,  17  L.  E.  A.  (N.  S.),  496,  the 
court  declared: 

**  While  the  police  power  is  one  whose  proper 
use  makes  most  potently  for  good,  in  its  unde- 
fined scope  and  inordinate  exercise  lurks  no 
small  danger  to  the  Republic.  For  the  difficulty 
which  is  experienced  in  defining  its  just  limits 
and  bounds,  affords  a  temptation  to  the  legis- 
lature to  encroach  upon  the  rights  of  citizens 
with  experimental  laws,  none  the  less  dangerous 
because  well  meant." 


87 

In  Wyatt  vs.  Ashbrook,  48  L.  R.  A.,  265,  the  court 
said: 

**Mere  legislative  assumption  of  the  right  to 
direct  and  indicate  the  channel  and  course  into 
which  the  private  energies  of  the  citizen  shall 
flow,  or  the  attempt  to  abridge  or  hamper  his 
right  to  pursue  any  lawful  calling  or  avocation 
which  he  may  choose  without  unreasonable  reg- 
ulation or  molestation,  have  ever  been  con- 
demned in  all  free  government." 

John  K.  Graves. 
January,  1911. 


88 


APPENDIX  B. 


Extract  from  Address  by  Mr.  W.  W.  Finley,  President  of  Southern  Rail- 
way Company,  before  the  Traffic  Club  of  Philadelphia,  on  February  18, 
1911. 


About  a  month  ago,  in  an  address  which  I  delivered 
before  the  Traffic  Club,  of  Washington,  D.  C,  I  stated, 
what  I  had  said  on  previous  occasions,  that  **the  only 
just  method  of  determining  the  reasonableness  of 
transportation  charges  is  to  measure  them  by  the  serv- 
ice performed."  A  newspaper,  in  commenting  edito- 
rially on  my  address,  said,  in  effect :  ' '  This  is  all  right 
as  far  as  it  goes,  but  will  not  Mr.  Finley  tell  us  just 
how  to  apply  this  yard-stick?"  That  is  what  I 
shall  attempt  to  do  this  evening. 

In  order  to  lay  a  broad  and  firm  foundation,  I  shall 
first  state  some  underlying  facts  and  principles  which 
I  believe  to  be  self-evident. 

At  the  outset,  it  should  be  borne  in  mind  that  the 
railways  of  the  United  States — although  public  high- 
ways, and,  as  such,  properly  subject  to  such  govern- 
mental regulation  as  will  insure  to  all  citizens  equality 
of  rights  on  them,  under  similar  circumstances  and 
conditions,  and  as  will  prevent  unreasonable  or  extor- 
tionate charges — have,  nevertheless,  been  built  with 
private  capital  and  are  the  private  property  of  their 
owners. 

It  is  a  fundamental  economic  truth  that  the  invest- 
ment of  funds  in  any  class  of  property  is  dependent  on 
the  safety  of  the  principal  and  the  rate  of  profit  that 
may  be  expected  as  compared  with  the  rate  that  can  be 


89 

earned  on  investments  in  other  kinds  of  business.  In 
other  words,  the  flow  of  capital  into  any  particular 
business  will  be  retarded  unless  it  may  be  expected  to 
earn  a  reasonable  profit  as  compared  with  the  earn- 
ings of  capital  in  other  enterprises.  The  wise  men 
who  framed  the  Constitution  of  the  United  States  took 
cognizance  of  this  principle  when  they  threw  the  pro- 
tection of  that  supreme  law  of  our  land  about  private 
property  in  language  which  the  profound  lawyers  who 
have  composed  our  Supreme  Court  have  held  to  cover 
not  only  the  property  itself  but  the  right  to  its  profit- 
able  use.  Thus,  as  the  Supreme  Court  said,  in  the 
case  of  Chicago,  Milwaukee  &  St.  Paul  R.  R.  Co.  vs, 
Minnesota : 

**If  the  company  is  deprived  of  the  power  of 
charging  reasonable  rates  for  the  use  of  its 
property,  and  such  deprivation  takes  place  in 
the  absence  of  investigation  by  judicial  ma- 
chinery, it  is  deprived  of  the  lawful  use  of  its 
property,  and  thus,  in  substance  and  effect,  of 
the  property  itself,  without  due  process  of  law 
and  in  violation  of  the  Constitution  of  the 
United  States;  and  in  so  far  as  it  is  thus  de- 
prived, while  other  persons  are  permitted  to  re- 
ceive reasonable  profits  upon  their  invested 
capital,  the  company  is  deprived  of  the  equal 
protection  of  the  laws.''  ' 

Thus  the  constitutional  standard  and  the  economic 
standard  for  the  fixing  of  a  charge  for  any  specific 
service  by  a  privately  owned  railway  are  the  same.  It 
must  be  reasonable,  as  measured  by  the  service  per- 
formed. It  is  the  common-law  rule  that  he  who  per- 
forms service,  in  the  absence  of  a  specific  contract,  is 
entitled  to  just  compensation  for  that  service,  and  it  is 


90 

this  rule  which  has  governed  the  courts  of  England 
for  centuries,  and  of  our  own  country  from  colonial 
times,  in  determining  all  controversies  as  to  prices  of 
commodities  and  charges  for  services. 

The  United  States  Interstate  Commerce  Law  pro- 
vides that  ^*all  charges  made  for  any  service  rendered 
or  to  be  rendered  in  the  transportation  of  passengers 
or  property  *  *  *  shall  be  just  and  reasonable/* 
This  is  simply  the  legislative  enactment  of  the  consti- 
tutional and  economic  standard  to  which  I  have  re- 
ferred. 

The  standard  is  thus  clearly  established.  It  is  the 
right  of  the  carrier  to  receive  reasonable  compensa- 
tion for  each  service,  as  measured  by  that  service. 
That  the  application  of  this  standard,  in  specific  in- 
stances, may  be  difficult  does  not  excuse  failure  to  ap- 
ply it.  It  is  being  applied  with  more  or  less  exactness 
in  the  practical  every-day  fixing  of  charges  by  the 
railways  and  in  the  cases  before  the  Interstate  Com- 
merce Commission  and  the  courts  involving  the  rea- 
sonableness of  specific  charges. 

The  question  of  what  is  a  reasonable  charge  for  a 
specific  service  is  complicated  by  the  fact  that  neither, 
as  a  matter  of  transportation  policy  or  of  public  policy, 
can  charges  on  all  classes  of  traffic  be  uniform.  Com- 
modities of  great  weight  or  bulk  in  proportion  to  their 
value  must  be  carried  at  rates  substantially  lower  than 
those  which  may  properly  be  charged  for  the  carriage 
of  commodities  which  are  of  high  value  in  proportion 
to  their  weight  or  bulk. 

As  a  result  of  the  necessity  for  different  rates  on 
different  classes  of  commodities,  each  individual  rate 
or  each  rate  applying  to  a  class  of  commodities  must 
be  considered  on  its  merits  in  its  relation  to  the  par- 
ticular service  performed.  The  cost  of  performing  the 
service,  as  nearly  as  it  can  be  ascertained,  must  cer- 


91 

tainly  be  taken  into  consideration.  No  rate  should  be 
made  so  low  as  not  to  pay  something  more  than  what 
Mr.  Acworth,  the  eminent  English  economist,  has 
aptly  termed  'Hhe  actual  out-of-pocket  cosf  of  mov- 
ing that  particular  traffic.  If  it  pays  this  cost  and  con- 
tributes, even  in  small  measure,  toward  the  general  ex- 
penses and  fixed  charges  of  the  carrier,  it  is  a  profit- 
able rate,  provided  the  carrier  has  a  considerable  vol- 
ume of  traffic  moving  at  higher  rates.  The  low-class 
traffic  moved  at  these  low  rates  is  not  a  burden  on  the 
higher-class  traffic,  for,  by  just  so  much  as  it  contrib- 
utes to  general  expenses  and  fixed  charges,  it  reduces 
the  amount  which  the  higher-class  traffic  must  con- 
tribute. In  practical  rate-making  the  question  of  the 
cost  of  the  service  has  a  controlling  bearing  only  as 
determining  the  level  below  which  a  rate  cannot  prop- 
erly be  made. 

The  value  of  the  service  is  another  important  factor 
in  rate-making  and  in  determining  the  reasonableness 
of  a  rate  that  may  be  challenged.  Transportation  en- 
ables those  engaged  in  any  given  industry  to  carry  on 
their  business  in  those  localities  best  suited  for  it  and 
to  market  elsewhere  the  surplus  not  needed  for  con- 
sumption at  the  point  of  production.  By  moving  com- 
modities from  places  where  the  supply  exceeds  the 
local  demand  to  places  where  they  are  scarce  and  are 
wanted,  additional  value  is  given  to  the  whole  volume 
of  production — including  the  proportion  consumed  lo- 
cally, as  well  as  to  that  carried  to  other  markets.  As 
affecting  the  consumer  of — let  us  say,  cotton  goods,  by 
way  of  illustration — the  carriage  of  the  raw  cotton  to 
the  mill  and  the  transportation  of  the  finished  goods 
to  his  market,  is  a  process  of  production.  This  trans- 
portation gives  added  value  to  the  raw  cotton  produced 
on  the  farm,  and  to  the  goods  produced  in  the  cotton 
mill,  and  the  carrier  is,  therefore,  entitled  to  fair  rec- 


92 

ognition  for  its  service  in  the  process  of  producing  the 
finished  cloth  and  placing  it  in  the  hands  of  consumers, 
just  the  same  as  is  the  farmer  and  the  cotton-mill 
owner. 

The  increased  value  given  to  a  commodity  by  trans- 
portation is  the  measure  of  the  value  of  the  service  to 
the  owner  of  the  commodity.  It  is  not,  however,  the 
absolute  measure  of  a  reasonable  rate,  for,  if  the  trans- 
portation charges  were  so  high  as  to  absorb  all  of  this 
increased  value,  the  owner  would  have  no  incentive  to 
ship  and  the  traffic  would  not  move.  This  may  be  il- 
lustrated by  referring  to  the  rail  movement  of  a  very 
low-grade  commodity,  such  as  ordinary  sand — a  com- 
modity which  is  found  in  abundance  in  most  localities 
and  the  value  of  which,  generally  speaking,  can  be  very 
little  increased  by  transportation.  It  is  manifest  that 
it  would  be  impossible  to  make  a  practical  rate  on  sand 
for  any  such  distance  as  from  Philadelphia  to  Chi- 
cago, for  the  reason  that  the  out-of-pocket  cost  of  per- 
forming the  service  would  be  far  in  excess  of  the  value 
of  the  service  to  the  shipper. 

As  transportation  has  contributed  all  of  the  in- 
creased value  which  is  given  a  commodity  by  its  car- 
riage to  market,  which,  as  we  have  seen,  is  a  factor  in 
effective  production,  the  carrier  is  entitled  to  a  reason- 
able share  of  that  increase.  The  value  of  the  service 
is,  therefore,  a  most  important  factor  in  determining 
what  is  a  reasonable  charge  for  a  specific  transaction. 
Out  of  the  intimate  relation  of  the  cost  of  the  service 
and  the  value  of  the  service  to  the  reasonableness  of  a 
transportation  charge  grows  the  fact  that,  in  an  era  of 
generally  advancing  prices,  when  both  the  cost  of  the 
service  and  the  value  of  the  service  are  increasing,  the 
level  of  the  reasonable  charge  for  the  service  thus  af- 
fected also  advances. 


93 

In  determining  the  proportion  of  the  value  of  the 
service  which  the  carrier  may  reasonably  and  justly 
charge  for  its  part  in  creating  that  value,  intelligent 
consideration  must  be  given  to  comparison  with  rates 
charged  by  the  carrier  for  other  similar  services,  to 
comparison  with  the  rates  of  competing  carriers,  to 
comparison  with  the  rates  at  which  carriers  in  other 
localities  move  the  same  commodity  under  similar  cir- 
cumstances and  conditions,  to  comparison  with  the  rates 
on  similar  commodities  which  might  be  substituted  in 
use  for  the  one  in  question,  to  the  intrinsic  value  of  the 
commodity,  to  the  risk  of  breakage  or  other  injury  in 
transit,  to  the  insurance  risk,  to  the  effect  of  the  rate 
on  the  volume  of  traffic,  and  to  the  general  condition  of 
the  business  to  which  the  special  traffic  is  related. 
When  the  reasonableness  of  a  rate  is  called  into  ques-* 
tion,  consideration  and  great  weight  must  be  given  to 
expert  testimony. 

Of  all  these  guides  for  determining  the  reasonable- 
ness of  a  specific  rate,  the  effect  on  traffic  is  perhaps 
the  most  important,  for  an  increasing  volume  of  traffic 
is  prima  facie,  and  almost  conclusive,  evidence  that  the 
rate  is  not  unreasonably  high,  though  it  may  be  un- 
reasonably low. 

It  will  be  seen  that,  in  the  final  analysis,  the  reason- 
ableness of  a  transportation  charge  is  largely  a  mat- 
ter of  expert  judgment.  So  is  the  reasonableness  of 
any  price  or  charge  that  may  be  called  into  question. 
If  one  of  you  employs  a  lawyer,  without  any  agreement 
as  to  what  his  fee  shall  be,  and,  after  the  service  has 
been  performed,  you  decline  to  pay  his  bill  on  the 
ground  that  it  is  too  high,  he  sues  you  for  the  amount 
of  his  bill.  The  question  raised  is  what  would  consti- 
tute a  reasonable  charge  for  the  service  performed, 
and,  on  this,  testimony  will  be  introduced  to  show,  pri- 
marily and  principally,  the  value  of  the  service  to  you. 


94 

Testimony  will  also  be  presented  as  to  the  usual  fees 
which  this  lawyer  and  other  lawyers  receive  for  sim- 
ilar  services,  as  to  the  amount  of  time  consumed,  and 
the  skill  which  he  displayed  in  rendering  the  service. 
Based  on  this  testimony  the  jury  will  form  a  judgment 
as  to  what  is  a  reasonable  charge  for  the  specific  serv- 
ice performed.  The  same  method  is  followed  in  con- 
demnation proceedings  when  a  railway  company  seeks 
to  acquire  land  for  railway  purposes  and  fails  to  reach 
an  agreement  with  the  owner  as  to  the  price  to  be  paid. 
The  question  here  presented  is  as  to  the  fair  and  rea- 
sonable present  value  of  the  land  to  its  owner  and  as  to 
the  fair  and  reasonable  amount  to  be  allowed  him  for 
the  damage,  if  any,  that  may  result  to  his  remaining 
property  by  the  construction  of  a  railway  through  it. 
Evidence  will  be  considered  as  to  the  value  of  that  par- 
ticular strip  of  land,  as  to  the  profitableness  of  the 
uses  to  which  it  has  been  put  by  its  owner  or  of  the 
uses  to  which  it  might  be  put.  Evidence  will  also  be 
considered  as  to  the  prices  at  which  other  tracts  of 
land  in  the  same  locality  have  been  sold,  and  on  all 
these  points  expert  testimony  will  be  considered.  The 
amount  which  the  owner  paid  for  the  land,  if  bought 
sufficiently  near  the  time  of  condemnation  to  be  perti- 
nent, may  be  introduced  in  evidence  and  will  be  con- 
sidered, but  it  is  not  controlling  on  the  jury,  which, 
from  all  the  evidence  introduced,  must  determine  what 
is  the  just  and  reasonable  compensation  to  its  owner 
at  the  particular  time  when  it  is  taken. 

You  will  note  that  I  have  said  nothing  as  to  the  cost 
of  a  railway,  its  value,  or  its  capitalization  as  factors 
in  determining  the  reasonableness  of  any  specific 
transportation  charge.  The  reason  is  that,  while  it  is 
essential  to  the  continued  development  of  the  railway 
system  of  the  United  States  that  the  whole  body  of 
charges  shall  be  such  as  to  yield  such  profits  as  will 


95 

attract  capital  to  investment  in  railway  enterprises, 
neither  cost,  value,  nor  capitalization  can  have  any 
controlling  bearing  on  the  reasonableness  of  any  par- 
ticular charge  for  a  specific  service  by  any  particular 
railway. 

Every  railway  traffic  official  strives  to  obtain  such 
an  adjustment  of  each  charge  for  a  specific  service  as 
will  result  in  the  total  charges  for  all  services  rendered 
by  his  company  yielding  a  maximum  of  revenue. 
When  he  comes  to  the  fixing  of  any  specific  charge, 
however,  he  finds  that  his  discretion  is  limited  very 
narrowly  by  economic  forces  entirely  beyond  his  con- 
trol.  He  must  consider  the  competition  of  other  car- 
riers. He  must  consider  the  competition  of  producers 
in  localities  off  of  the  line  of  his  road  who  are  market- 
ing the  same  commodity  in  the  same  markets  as  the 
producers  on  his  road.  He  must  consider  the  compe- 
tition of  markets  which  are  seeking  to  draw  com- 
modities produced  along  his  line  away  from  the  mark- 
kets  which  it  serves.  He  must  consider  the  competi- 
tion of  similar  commodities  which  may  possibly  be 
used  in  substitution  for  the  one  affected  by  the  specific 
charge  under  consideration.  These  competitive  forces, 
and  the  necessity  for  so  adjusting  the  charge  as  to  en- 
courage the  movement  of  traffic,  effectively  fix  a  level 
above  which  he  is  powerless  to  advance  the  charge. 
He  cannot  give  practical  consideration  to  either  the 
cost  of  the  railway,  its  value,  or  its  capitalization.  If 
it  were  otherwise,  and  if,  as  seems  to  be  believed  in 
some  quarters,  transportation  charges  could  be  so  ad- 
justed as  to  yield  a  certain  return  on  railway  capital, 
every  railway  would  be  profitable  to  its  owners  and 
such  a  thing  as  a  bankrupt  railway  company  would  be 
unknown,  unless  caused  by  dishonesty  or  mismanage- 
ment. 


96 

Transportation  charges  being  controlled  so  largely 
by  the  competitive  forces  to  which  I  have  referred  and 
by  the  necessity  of  keeping  each  charge  below  the  max- 
imum of  the  value  of  the  service  in  order  to  insure 
the  movement  of  traffic,  it  follows  that  the  intelligent 
railway  manager,  having  in  view  the  ultimate  inter- 
ests of  the  property  intrusted  to  his  care,  will  seek  so 
to  adjust  each  specific  charge  that  it  will  be  reasonable 
as  measured  by  the  specific  service.  If,  through 
faulty  judgment  or  for  any  other  cause,  he  shall  err 
in  the  fixing  of  any  specific  charge,  his  error  may  be 
corrected  by  the  machinery  which  the  law  has  provided 
for  the  correction  of  any  charge  that  may  be  unreason- 
able as  measured  by  this  standard. 

When  the  specific  charges  of  a  railway  company  have 
been  so  adjusted  that  each  is  reasonable,  as  measured 
by  the  service  performed,  and  when  that  company  ab- 
stains from  any  undue  discrimination  in  charges  or 
service  between  individuals,  localities,  or  commodities, 
if,  by  reason  of  the  poor  location  of  the  railway,  high 
cost  of  construction,  faulty  management,  or  any  other 
cause,  the  revenues  derived  from  all  of  its  charges 
are  so  small  as  to  yield  no  net  return  on  its  capitaliza- 
tion, that  is  the  misfortune  of  its  owners.  On  the  other 
hand,  if,  by  reason  of  the  favorable  location  of  the 
road,  low  cost  of  construction,  efficiency  of  manage- 
ment, or  any  other  cause,  the  net  return  to  the  owners 
of  the  property  is  substantial,  that  is  their  good  for- 
tune. They  are  entitled  to  the  use  and  enjoyment  of 
the  whole  of  such  net  returns  in  the  same  measure  as 
the  farmer  whose  land  is  fertile  and  is  favorably  lo- 
cated is  entitled  to  the  use  and  enjoyment  of  all  that 
he  can  make  out  of  his  farm  by  the  most  efficient  man- 
agement. 

The  reciprocal  obligations  of  the  railways  and  the 
people  were  clearly  stated  by  Senator  Bailey,  of  Texas, 


97 

in  an  address  dealing  with  this  subject  delivered  be- 
fore the  New  York  State  Bar  Association  on  January 
20,  1910,  in  which  he  said : 

**The  obligation  of  every  railroad  to  the  peo- 
ple is  to  render  them  a  prompt,  safe,  and  proper 
service;  and  to  render  every  person  the  same 
service  for  the  same  pay.  The  obligation  of  the 
people  to  every  railroad  is  to  pay  a  just  com- 
pensation for  such  services  as  they  require  of  it ; 
and  the  whole  duty,  as  well  as  the  whole  power 
of  the  Government,  begins  and  ends  with  the 
due  enforcement  of  these  reciprocal  obliga- 
tions." 


Senator  Bailey  thus  clearly  defines  the  limit  of  the 
duty  and  the  power  of  government  in  the  regulation 
of  railways  built  and  operated  by  private  capital.  His 
clear  and  logical  mind  rejects  as  legally  and  econom- 
ically unsound  the  measuring  of  the  reasonableness  of 
a  transportation  charge  by  any  other  standard  than 
that  of  just  compensation  for  the  service  performed. 
In  the  same  address  he  exposes  the  legal  fallacy  and 
the  practical  impossibility  of  considering  the  value  of 
railway  property  as  a  controlling  factor  in  determin- 
ing the  reasonableness  of  a  charge  for  transportation 
service. 

While  it  was  not  a  case  involving  railway  rates,  I 
believe  that  the  views  announced  by  Justice  Brewer 
of  the  Supreme  Court  in  Cotting  vs.  Kansas  City 
Stock  Yards  Company  lay  down  in  clear  and  unmis- 
takable language  the  rule  which  should  be  applied  to 
the  determination  of  the  reasonableness  of  any  rail- 
way charge.  Speaking  of  a  person  who  has  devoted 
his  property  to  a  public  use,  Justice  Brewer  said : 

7~E 


98 

'^The  State's  regulation  of  his  charges  is  not 
to  be  measured  by  the  aggregate  of  his  profits, 
determined  by  the  volume  of  business,  but  by 
the  question  whether  any  particular  charge  to 
an  individual  dealing  with  him  is,  considering 
the  service  rendered,  an  unreasonable  exaction. 
In  other  words,  if  he  has  a  thousand  transac- 
tions a  day,  and  his  charges  in  each  are  but  a 
reasonable  compensation  for  the  benefit  re- 
ceived by  the  party  dealing  with  him,  such 
charges  do  not  become  unreasonable  because,  by 
reason  of  the  multitude,  the  aggregate  of  his 
profits  is  large.  The  question  is  not  how  much 
he  makes  out  of  his  volume  of  business,  but 
whether  in  each  particular  transaction  the 
charge  is  an  unreasonable  exaction  for  the  serv- 
ices rendered.  He  has  a  right  to  do  business. 
He  has  a  right  to  charge  for  each  separate  serv- 
ice that  which  is  reasonable  compensation  there- 
for, and  the  legislature  may  not  deny  him  such 
reasonable  compensation,  and  may  not  interfere 
simply  because,  out  of  the  multitude  of  his 
transactions,  the  amount  of  his  profits  is  large." 

In  this  cas^  Justice  Brewer  clearly  announces  the 
rule  which  I  believe  should  be  applied  to  all  questions 
affecting  the  reasonableness  of  railway  charges.  He 
clearly  lays  down  the  principle  that  the  only  question 
involved  in  the  matter  there  under  discussion  was 
whether  any  particular  charge  for  a  specific  service 
was  an  unreasonable  exaction  as  measured  by  that  serv- 
ice. He  indicates  that  the  value  of  the  service  to  the 
person  for  whom  it  is  rendered  must  be  the  principal 
factor  in  determining  the  reasonableness  of  the  charge. 
This  rule  eliminates  from  consideration,  except  as  I 
shall  hereafter  explain,  all  questions  of  capitalization 


99 

and  of  the  value  or  cost  of  the  property  used  in  per- 
forming the  service  by  declaring  explicitly  that  *'the 
legislature  may  not  deny  him  such  reasonable  compen- 
sation, and  may  not  interfere  simply  because,  out  of 
the  multitude  of  his  transactions,  the  amount  of  his 
profits  is  large/'  The  application  of  this  rule  to  pri- 
vately owned  railways,  which  I  believe  to  be  proper 
and  will  ultimately  be  done,  clearly  denies  to  govern- 
ment the  right  to  place  any  limitation  on  the  amount 
that  may  be  earned  on  railway  capital.  It  would  in- 
vite the  people  of  the  United  States  to  invest  their 
money  in  the  great  and  honorable  business  of  trans- 
portation with  the  assurance  that  the  properties  they 
create  will  have  the  equal  protection  of  the  laws  and 
will  be  surrounded  by  the  same  safeguards  as  are 
thrown  around  property  in  other  forms.  It  would  en- 
courage those  engaged  in  this  business  to  strive  con- 
stantly to  make  their  service  more  efficient  by  the 
adoption  of  improved  appliances  and  methods,  with 
the  assurance  that  they  will  be  permitted  to  reap  the 
profits  of  their  enterprise  and  skill. 

While  it  is  an  economic  and  practical  impossibility 
so  to  adjust  any  charge  for  a  specific  transportation 
service  that  it  shall  bear  a  fixed  and  predetermined  re- 
lation to  railway  value  or  capitalization,  there  are  cer- 
tain conditions  under  which  the  return  on  the  capital 
invested  must  be  considered  in  determining  questions 
as  to  the  reasonableness  of  charges.  I  believe  I  have 
established  the  proposition  that  when  the  charges  of 
a  railway  are  not  exorbitant  or  unreasonably  high,  as 
measured  by  the  service  performed,  'the  right  to  pos- 
sess and  enjoy  the  profits  it  may  earn,  be  they  much  or 
little,  is  a  property  right  in  which  its  owners  are  pro- 
tected by  the  Constitution  of  the  United  States.  It 
follows  that,  unless  it  can  be- clearly  established  that  the 
charges  of  a  railway  are  exorbitant  and  unreasonably 


100 

high,  as  measured  by  the  standard  of  service,  any  re- 
duction attempted  to  be  made  by  governmental  author- 
ity is  an  unconstitutional  act,  and  evidence  showing 
that  such  reduction  would  deprive  the  owners  of  the 
property  of  a  reasonable  return  on  their  investment 
would  be  conclusive  as  to  its  unconstitutionality.  Fur- 
ther, in  a  time  of  advancing  commodity  prices  and 
labor  costs,  the  fact  that  the  whole  body  of  its  trans- 
portation charges  fails  to  yield  a  fair  and  reasonable 
return  on  the  capital  invested  in  a  railway  is  pre- 
sumptive evidence  that  there  has  been  such  an  increase 
in  the  cost  of  the  service  and  in  the  value  of  the  serv- 
ice as  to  require  a  readjustment  of  charges  upon  a 
higher  average  level.  This  is  but  another  way  of  say- 
ing that  rates  must  be  reasonable  for,  and  under  the 
conditions  and  circumstances  of,  the  service.  In  the 
changed  conditions  growing  out  of  higher  prices  for 
everything  else  a  higher  price  for  railway  transporta- 
tion becomes  reasonable. 

Under  such  conditions  it  is  to  the  public  interest 
that  such  a  readjustment  should  take  place,  for  the 
primary  interest  of  the  public  in  the  railways  is  in 
adequacy  of  facilities  and  efficiency  of  service,  and 
these  can  be  provided,  in  a  country  with  a  constantly 
increasing  volume  of  traffic,  only  when  the  average  re- 
turn on  capital  invested  in  railways  bears  such  a  rela- 
tion to  the  returns  on  investments  in  other  forms  of 
property  as  to  insure  a  constant  flow  of  new  capital 
into  railway  enterprises.  In  other  words,  the  fair 
maintenance  of  the  just  credit  of  the  railways  is  a  cir- 
cumstance which, should  be  taken  into  consideration  in 
determining  the  reasonableness  of  rates,  not  only  in 
the  interest  of  the  railways,  but  in  the  interest  of  the 
public.  In  this  connection,  I  think  we  may  properly 
refer  to  the  relation  of  the  governmental  policy  of  Ger- 
many to  the  wonderful  industrial  development  that  has 


•  •   ••. 
.*  •  •• . 


101 

marked  the  recent  history  of  that  country  and  is  still 
in  progress.  It  is  not  without  significance  that  we  find 
the  highest  court  in  the  German  Empire  saying : 

''When  in  a  branch  of  industry  the  prices  of 
a  product  fall  too  low,  and  the  successful  con- 
duct of  the  industry  is  endangered  or  becomes 
impossible,  the  crisis  which  sets  in  is  detri- 
mental, not  merely  to  individuals,  but  to  soci- 
ety as  a  whole.  It  is  in  the  interests  of  the  com- 
munity, therefore,  that  inordinately  low  prices 
should  not  exist  in  any  industry  for  a  long 
time." 

If  this  is  true  as  to  the  prices  of  the  products  of  any 
industry,  Mr.  Toastmaster,  I  believe  it  is  equally  true 
of  the  charges  of  a  railway,  for  transportation  is  a  part 
of  production,  and,  in  our  modern  civilization,  the 
prosperity  of  every  industry  and  of  every  individual 
is  affected,  directly  or  indirectly,  by  transportation. 

The  desire  of  each  man  to  better  his  condition  and 
to  provide  for  his  family  is  the  mainspring  of  human 
progress.  I  believe  that  each  man  should  have  the 
most  ample  liberty  to  achieve  success  consistent  with 
the  preservation  of  the  same  degree  of  liberty  to  all 
other  men.  I  do  not  believe  that,  as  to  those  of  our 
fellow-citizens  engaged  in  the  business  of  transporta- 
tion or  any  other  lawful  calling,  the  intelligent  public 
opinion  of  the  United  States  will  return  an  affirmative 
answer  to  the  question  which  Justice  Brewer  asked  in 
the  Cotting  case,  to  which  I  have  referred,  as  follows : 

' '  Is  it  true  in  this  country  that  one  who,  by  at- 
tention to  business,  by  his  efforts  to  satisfy  cus- 
tomers, by  his  sagacity  in  discerning  the  prob- 
able courses  of  trade,  and  by  contributing  of  his 


102 

means  to  bring  trade  into  those  lines,  succeeds 
in  building  up  a  large  and  profitable  business, 
becomes  thereby  a  legitimate  object  of  the  legis- 
lative scalping  knifeT' 

I  believe,  Mr.  Toastmaster,  that  the  preservation  of 
individual  liberty  is  essential  to  our  progress  as  a  peo- 
ple, and  that  the  millions  of  Americans,  each  seeking 
to  preserve  the  most  ample  opportunities  for  himself 
and  his  children,  would  look  upon  it  as  a  national 
calamity  if  we  should  say  to  any  citizen  ^'that  his  in- 
dustry, ability,  activity,  and  foresight  may  be  re- 
warded up  to  a  certain  extent  and  that  beyond  that  he 
may  not  go. ' ' 


[10609J 


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